When you pay alimony, you may have questions about how it will affect your taxes. Will you be taxed on the income you’re losing? Will this affect your overall income level? Before you ever pay alimony in a divorce, understanding how you’ll be affected in the long term is key to knowing which is a good settlement and which is one that could put you at financial risk.
The good news is, if you’re paying alimony, that you can actually write off that money on your taxes. By being able to deduct it, you can eliminate paying taxes on those earnings. Instead, your ex-spouse, the person receiving the alimony, will then be required to pay taxes on that income.
You can deduct alimony payments that you make if you meet several requirements. First, you must not have filed a joint return with your spouse. Second, if you pay in cash and the divorce or separation agreement doesn’t say the payment isn’t alimony, you can take it off your taxes. If you are legally separated under a decree of divorce and you aren’t living in the same house as your spouse when the payments are made and the payment isn’t considered to be child support, then you can meet the requirements for deducting this money from your taxes.
Child support, on the other hand, is not deductible. If you pay combined child support and alimony, you still can only claim back the money spent on alimony on your taxes. Both property settlements and lump sum settlements do not count as alimony.
Source: FindLaw, “Alimony and Taxes,” accessed May 26, 2016