Ending a marriage can be a difficult situation for both spouses. Adding insult to injury is the loss of the standard deduction for married filing jointly on your tax return ($10,900 in tax year 2008). However, it can be somewhat of a comfort for the spouse paying alimony to know that alimony payments are tax deductible.
Follow the steps below to deduct alimony on your federal tax return:
- First, you need to make sure that the payments you are making are considered deductible alimony payments. Alimony payments are only deductible if they are made to a spouse or former spouse under a divorce or a separation instrument. If you are making payments to your spouse voluntarily, without the use of a formal divorce decree or separation instrument, then those payments are not tax deductible. In addition, child support payments are not considered alimony and neither are non-cash property settlements. You also cannot deduct alimony if you and your former spouse are sharing the same residence.
- Secondly, if you have determined that your alimony payments qualify for deduction, keep in mind that your spouse or former spouse will have to report these payments as income, and you will have to identify your spouse or former spouse on your tax return with their social security number. If you do not provide your spouse's social security number, you may have to pay a $50 fine. If your spouse refuses to provide you with their social security number, he or she may be assessed a $50 fine.
- Next, in order to deduct alimony, you must file form 1040. You cannot use 1040A or 1040EZ. The total amount of your alimony payments should be posted on line 31A, and your former spouse's social security number should be posted there, as well. Please keep in mind that alimony payments are considered an income adjustment, meaning that the deduction will reduce your amount of taxable income. They are not tax credits, meaning that they do not automatically reduce your taxes due by the amount of the alimony.
Finally, you must report any changes (increases or decreases) to your alimony payments. These may be subject to recapture penalties.