Estranged California couples whose divorces involve either the payment of or the receipt of alimony need to be aware of how the IRS views the payments. The IRS allows people who are ordered to pay alimony to deduct the payments on their federal income tax returns. Conversely, those who receive alimony payments must report them as income.
Not all payments made by one former spouse to the other can be deducted. If a person is voluntarily making payments without a court order to do so, the amounts paid cannot be deducted as alimony. The alimony paid must be paid pursuant to either an order of the court or to a written agreement. If a payment includes both alimony and child support, only the amounts attributed to the alimony may be deducted, as child support does not count as income for the parent who receives it and is not deductible by the paying parent.
Payments made to third parties on behalf of a former spouse under court order also may qualify. These payments can include payments for utilities, rent, life insurance or medical insurance. Property settlements do not count as alimony, and the spousal maintenance payments must be made in cash or by check or money order to qualify for the deduction.
Many people are unaware of the alimony rules for taxes. Understanding the requirements is important so people do not run afoul of their federal income tax obligations. People who either make alimony payments or receive them may want to meet with a family law attorney in order to determine the amounts that must be claimed or which may be deducted. For those who are ordered to pay it, the available deduction may help save significant amounts on their federal income taxes.