Those receiving or paying alimony under a court agreement should know the tax rules that affect them, the Internal Revenue Service said.
Alimony may be deductible by the person paying it if certain requirements are met. If alimony is deductible by the payer, it is taxable to the recipient.Payments under divorce or separation agreements made after 1984, or pre-1985 agreements changed to specify that the new rules will apply, are treated as alimony if all the following requirements are met:
1. The payments are in cash.
2. The parties do not designate that the payments are not alimony. 3. IF the parties are legally separated under a decree of divorce or separate maintenance, the parties are not members of the same household when the payments are made.
4. There is no liability to make any payment (in cash or property) after the death of the recipient spouse.
5. The payments are not treated as child support.
6. The parties do not file a joint return for the year in which the qualifying payments were made.
The payer can deduct alimony payments from gross income without itemizing deductions, the IRS says. The payer must include on his or her tax return the spouse's or former spouse's last name, if different from the payer's, and the spouse's social security number. Failure to report the number may result in a $50 penalty.
If the spouse of former spouse fails to supply the payer with his or her social security number, a penalty of $50 may be imposed on the spouse or former spouse.
Free IRS Publication 504, "Tax Information for Divorced or Separated Individuals," explains the tax treatment of alimony in more detail.