Tax Implications with Spousal Support

Spousal Support AttorneySpousal support, previously known as alimony, is a stream of payment that an individual is obligated to pay to their spouse after a separation or divorce. It is also termed as financial support, maintenance, or subsistence. No matter what terminology is used, spousal support has certain tax implications that need to be considered during a divorce. Hence, it is important to consult an experienced spousal support lawyer to ensure your tax returns are filed correctly.

Tax Implications of Spousal Support

The spouse who receives the alimony is liable to pay taxes on the payments received. The amount of spousal treatment will be treated as a form of income such as earned income. IRS form 1040 has a dedicated space on line 11 to include any amount related to spousal support received during the prior tax year. As this amount is treated the same way as a salary, it will be taxed somewhere between 10% – 30% depending upon the tax bracket of the spouse.

Thus, when deciding the amount of spousal support, it is imperative that tax implications should also be factored into the agreement. For instance, if a spouse is seeking a payment of $2,000 per month and the applicable tax bracket is 20%, this figure should be adjusted for the after-tax figure.

Thus, the payment of $2,500 per month should be asked to make up for the 20% ($500) of the amount lost in respect to a tax deduction. A component spousal support lawyer will ensure that the amount agreed for spousal support is a post-tax figure so the tax deduction does not reduce the amount of benefit.

Conversely, the spouse who is making alimony payments is able to claim them as tax deductions when filing their taxes. In order to make these deductions, the payments must satisfy 7 requirements set out by the Internal Revenue Service. If all the requirements are met, the spouse making the payment can claim a deduction by using IRS Form 1040.

Moreover, the paying spouse must present the amount paid during the prior year as well as former spouse’s social security number (SSN). In addition to that, it is also important to have proof of payments that were made in respect to spousal support as a deduction cannot be claimed without a paper trail.

Finally, if the spouse who is liable to pay alimony is unable to make payments and it gives rise to an arrearage, the court may instruct the spouse paying the alimony to provide the extra amount to receiving spouse in order to cover the interest charges on the arrearage. However, the payment covering the arrearage will not be deductible for tax purposes.

If you are seeking a divorce, it can be highly advantageous for your case to acquire the services of a seasoned spousal support lawyer to understand the tax implications of spousal support to ensure that you comply with tax regulations and do not sign an unfavorable term in your divorce settlement.

For further information about issues pertaining to tax implications of spousal support or to schedule a free consultation, contact the Law Office of Fedor Kozlov at 847-241-1299.

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