Spousal support is tax deductible for the party who pays it and is taxable income for the party who receives it.
The federal IRS tax code spells out eight requirements for payments to be considered alimony/spousal support. If all of them are met, payments will be taxable to the person receiving them and can be a deduction from gross income for the person paying them.
1. “the payment is made under a written divorce or separation agreement”
2. “for payments made after the couple is no longer married, they can no longer live in the same household”
3. “the payments are in cash or cash equivalents”
4. “ the payments are made to (or on behalf of) a spouse or former spouse”
5. “ the agreement does not state that the payment is not alimony for tax purposes”
6. “the parties do not file a joint tax return”
7. “the obligation to make the nondelinquent payments does not survive the receiving spouse” (the payments must stop upon the death of the spouse receiving the support)
8. “the payments cannot be called child support in the agreement or be deemed child support”
Certain payments such as mortgage, home insurance, property tax, medical expenses and rent can be structured as spousal support and qualify as a deduction for the payer and as taxable income to the recipient. Certain life insurance payments can also be considered spousal support if the ex-spouse receiving the payments owns the life insurance policy.
Taxes and spousal support can be a complex issue. These payments and their tax implications need to be carefully discussed and thought out before the parties reach a spousal support agreement. Contact our office at 760-722-7669 if you have any questions on this issue so we can determine which course of action could be right for you.