Tax time is just around the corner and tax implications of your divorce settlement need to be addressed. Spousal maintenance, formerly known as alimony, can be awarded to either party in a divorce settlement. If you are the receiver of maintenance, the money is income in the year received. An article recently written by Bankrate Inc. outlines tax considerations for the recipient and the payer and is summarized below.
Tax Considerations for the Recipient
Usually no taxes are withheld from maintenance payments. To avoid owing the IRS and possibly facing penalties for underpaying, it might be to your benefit to make estimated tax payments or increase the amount withheld from your paycheck.
In addition, maintenance payments must be reported on line 11 of the long Form 1040. This negates your option to file a shorter, simpler tax form.
Tax Benefits for the Payer
The ex making the payments has a new tax deduction. Maintenance payments are subtracted from the payer’s income on line 31 of Form 1040. In addition to stating the amount paid, the ex-spouses’ Social Security number must be added to ensure that maintenance payments are reported as income by the recipient. Adding the Social Security number is very important, because either ex-spouse could face a $50 penalty or in extreme cases, the IRS could disallow the deduction.
If your divorce settlement calls for both maintenance and child support, only the maintenance is taxable. Child support is not taxable as income, nor can the party paying it deduct the cost.
More information of this and other tax implications in divorce are available from the IRS in Publication 504, Divorced or Separated Individuals.
Do not rely solely on this article for information but contact the attorneys at Stange Law Firm, PC who focus entirely on family law and have the experience to handle such prudent matters. You can call us online or contact us at St. Louis Divorce Tax Issues.