When Illinoisans get divorced, it causes ripples across each spouse's life. There are the ripples people expect, like resolving child custody and splitting the marital assets. And then there are the ripples that people often overlook, like the tax effects of paying alimony. Below are a few explanations on how alimony affects Illinoisans' federal tax returns.
Federal tax law considers only certain payments from one ex-spouse to another as alimony. Several requirements must be met, for such payments to be alimony for tax purposes. The spouses must not file a joint tax return. One spouse pays the other in cash (including checks and money orders). The payments are received by the other spouse. The payments are not described as something other than alimony by the separation or divorce agreement. The spouses do not live in the same household. The payments can stop if either spouse dies. And the payments are not treated as a property settlement or child support.
What is not alimony? Quite a few things, such as child-support payments, non-cash property settlements, voluntary payments or use of the payer's property.
How is alimony treated on a federal tax return? The payer can deduct alimony; the receiver must list the alimony as income.
Do payers have to itemize deductions to deduct for alimony payments? Yes, payers must claim the deduction using the Form 1040. They cannot use the Forms 1040EZ or 1040NR. In making the claim, payers must also provide the recipient spouse's Social Security Number.
Tax consequences are just one wrinkle that pops up during and after a divorce. To learn more about those wrinkles and how to make them as smooth as possible, Illinoisans may benefit from discussing their situation with an experienced family-law attorney.
Source: IRS, "Topic 452 - Alimony Paid," Accessed on May 10, 2015