More than 50% of marriages end in divorce in the United States. Many divorce decisions include provisions for payment of alimony. The IRS takes the position that the payment is a form of income and creates a tax deduction for benefits for the person making the payment.
According to the IRS, benefits payments are taxed to recipients in the year they are received. In turn, the person paying the alimony can claim a reduced payout if the following tests are met:
1. You and your spouse or ex-spouse do not file mutual returns,
2. You pay cash (including check or money order),
3. The divorce or separation certificate does not state that the payment is not alimony,
4. If legally separated by divorce decree or separate maintenance, you and your ex-spouse were not members of the same household at the time you made the payment,
5. You have no obligation to make any payments (in cash or property) upon the death of your spouse or ex-spouse; and
6. Your payments are not treated as child support.
If you receive or pay benefits, you must use Form 1040 for your personal taxes. Regardless of your income level, deduction, or other tax issue, you cannot use Form 104A or Form 1040EZ.
In preparing your tax return, the person receiving the benefits will report the information on line 11 of Form 1040. The person must also provide their former spouse’s social security number or face a $50 fine. The person paying the alimony can claim the deduction on line 34a of Form 1040.