Alimony and separate maintenance payments can be deducted from income by the person paying them, and included in the income of the person receiving them, if they meet certain IRS rules. These payments don’t have to be specifically for support, and they don’t have to be made regularly. But they must meet all the requirements of the IRS rules in order to be taxable or deductible. The IRS has seven rules, called the Seven Ds, that payments must meet to be taxable/deductible. Some common mistakes include thinking that payments for property or other reasons can’t be considered alimony for tax purposes, but that’s not always true. Whether a payment counts as alimony for tax purposes doesn’t necessarily depend on what it’s called. In Florida, the label given to alimony payments doesn’t affect their legal consequences. If the payments are for a property settlement, they can’t be changed. If they’re for spousal support, they can be changed. In the past, tax treatment of alimony payments depended on whether they were periodic or for support, but the rules changed in 1984. So, the tax treatment of payments doesn’t determine if they’re for support or a property settlement. If a person is receiving payments as part of a divorce or separation, they are usually taxable to the recipient and deductible to the person making the payments. However, there are cases where the payments may not be taxable or deductible, especially if the parties or the court specifically designate them as such. So, it’s not always guaranteed that these payments will be taxed or deductible. In simple terms, if a divorce agreement or court order doesn’t specifically say that alimony payments are not taxable or deductible, then they are taxable and deductible. The court can choose to make alimony payments non-taxable for the recipient and non-deductible for the payer. It’s important to consider the tax consequences when determining the amount of alimony. In a specific court case, the court decided that the payer couldn’t deduct the alimony payments and the recipient didn’t have to pay taxes on them. It’s best to use the exact language from the tax laws to be safe. Overall, the goal is to make sure that a spouse in need is supported without having to worry about taxes. The main point is that in order for payments to qualify as alimony for tax purposes, they must be made under a written agreement or court order related to a divorce or separation. Voluntary payments or informal arrangements don’t count. It doesn’t matter if the agreement or court order is later found to be invalid, as long as the payments were made under its provisions. In Richardson v. Commissioner, the court ruled that even if a separation agreement is later found to be invalid, payments made under it are still taxable. In Almodovar, the court said it was an error to require the husband to pay the taxes on alimony payments, but that’s not necessarily true under tax laws. Before 1984, it was common for the payor spouse to pay the taxes on alimony, and that’s still allowed under current laws. The court may have made a mistake in a ruling because it didn’t specify details about the payment of taxes on alimony in a divorce case. In general, it’s not wrong to make one spouse responsible for paying the tax on alimony, but the court needs to be clear about how it will be calculated and whether it will be taxable or deductible. In the future, more errors about tax and alimony will be discussed. “To teach its members about duty and serving the public, improve how justice is handled, and advance the study of law. The big question is if a husband still has to pay taxes on alimony if his wife dies.”
Source: https://www.floridabar.org/the-florida-bar-journal/is-it-alimony-as-defined-in-irc-71/
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