As tax season looms, recent divorcees in Kentucky may wonder what effect alimony -- also called spousal support -- has on their taxes. In fact, spousal support has tax consequences for both the receiving spouse and the paying spouse.
First of all, spousal support is considered income to the receiving spouse, and it will be taxed as such. Because of this, the paying spouse may deduct spousal support payments. This is beneficial because the receiving spouse's tax rate in general may not be as high as the paying spouse's tax rate.
Although the laws vary between states, in general there are certain requirements that must be met in order for the paying spouse to deduct their spousal support payments. First of all, each spouse must file a separate tax return. In addition, the spouses may not reside in the same household while spousal support is being paid.
In addition, to claim the deduction, spousal support payments must be made in the form of money orders, cash or checks. Couples should also understand that property settlements -- even if they are written into the order for divorce -- are not considered spousal support for tax purposes.
Also, the order for divorce must not state that the payments being made to the receiving spouse are not spousal support payments. In addition, child support payments are not deductible. Finally, a spouse must not liable for any spousal support payments after their ex-spouse has passed away.
Filing one's taxes after a divorce -- especially if it is the first time you are not filing as a married couple -- can be complicated. Fortunately, help is available in such situations to make sure not only that all income reporting requirements are met, but also that all deductions are maximized.
Source: FindLaw.com, "Alimony and Taxes," accessed on March 7, 2015