|Question: Are alimony payments considered taxable income?|
Alimony is a support payment made to a former (or separated) spouse under a divorce decree or separation instrument in an attempt to maintain the predivorce lifestyle. Alimony is sometimes called maintenance. Simply stated, alimony is taxable income to the one who receives it and tax deductible to the one who pays it. To be considered alimony under present tax rules, however, the payments must meet several requirements.
These requirements include (but are not limited to) the following:
You should also be aware of the alimony recapture rules. Because alimony is tax deductible, some spouses are tempted to disguise property settlement payments as alimony. They might accomplish this by front-loading alimony during the first couple of years. That is, one spouse might agree to pay high sums of alimony during the first two years after the divorce, and to continue with normal payments thereafter. According to the alimony recapture rules (which are fairly complex), deductible alimony payments will be recharacterized as nondeductible property settlement payments to the extent that payments made during the first two years are excessively front-loaded.
For more information, consult a tax professional.