Not all alimony payments qualify as deductions. The IRS lists seven requirements on taxpayers seeking to deduct alimony payments. Here are the requirements:
- Do not file a joint tax return. If former spouses file a joint income tax return, they cannot deduct alimony payments.
- Make payments in cash or by check.The payor must pay alimony by cash or check for the benefit of their former spouse. However, if payment is by cash, the payer must prove that the payment is received, so it is important to get signed receipts acknowledging payment by the payor. The payor cannot pay by other types of property, such as the value of a car.
- The payment is received by (or on behalf of) the payor’s former spouse. The payor must follow the documents and designate payments as tax-deductible.Payments should be made in accordance with a divorce document, such as a marital settlement agreement, separation agreement, court order, or divorce judgment. Payments made under to a temporary support order also qualify. (Section 71 of the Internal Revenue Code). The documents should state the amount to be paid and the amount must be characterized as alimony, spousal support, or spousal maintenance. The documents should also clearly label the payments as deductible by the payor spouse and taxable to the recipient spouse.
- If the divorce or separate maintenance decree or written separation agreement does not state that the payment is not alimony, then the IRS will not recognize it as such. Parties must make sure to follow IRS rules against front-loading—the advance payment of alimony that is due at a later date. Alimony should not be excessively high or front-loaded in the first three post-separation years. Excessive payments are subject to recapture or being taxed to the payor in the third post-separation year.
- Payments must be made after a physical separation. If spouses are legally separated under a decree of divorce or separate maintenance, former spouses should not be members of the same household when alimony payments are made. If former spouses are still living in the same home, alimony payments are not tax deductible.
- The marital settlement agreement or judgment must provide that alimony payments terminate when the recipient dies. (The document can also provide that the alimony obligation ends when the payor dies.) The payor has no liability to make any payment (in cash or property) after the death of their former spouse.