Real Talk: How Does Receiving Alimony Affect My Taxes?

We all know life can be complicated, and while taxes often touch upon the most joyful moments in life, many of our toughest times have tax implications as well. “Real Talk” is our monthly blog series that answers the tax questions that you may find harder to ask. TurboTax is here for you during your life changes.

Q.  My divorce just went through and I will get alimony from my ex-husband. Is the alimony taxable?

Questions about divorce and tax implications are very common, so I am glad you asked. If you are newly divorced and are receiving alimony here are a few things you should know.

When you receive alimony, you have to claim it on your taxes, but not child support. On the other hand, if you pay alimony, you will be able to deduct it on your taxes, but both spouses must also file separate tax returns as a prerequisite to alimony arrangements.

If alimony payments are concentrated in the first year or two after divorce, the IRS may consider the money to be non-deductible property settlement. And if alimony is scheduled to end within six months of a child’s 18th or 21st birthday, the IRS may consider the alimony to be disguised as child support. Also, rolling your support together into “family support” in your agreement makes it fully taxable to you and tax deductible to your ex, just like alimony.

Generally, your alimony should be included in your income if it is paid in dollars, under a decree or written agreement, and cease on your ex’s death. After the divorce, you must maintain your distance (you can’t live with your ex), and the payments can’t be designated as non-taxable or child support.

There is, however, a bright side to including your alimony in your taxable income. You may be able to deduct legal fees incurred to obtain your alimony to reduce your tax liability and save on your taxes.

Life changes like a divorce can bring up unknown questions, but don’t worry about knowing these tax laws.  TurboTax will help you through your life changes and will ask you simple questions and give you the tax deductions and credits you deserve based on your answers.