Rules for Tax-Deductible Alimony Payments

When North Carolina couples get a divorce, one person may be obligated to pay alimony. Usually, the recipient must pay taxes on the alimony while the payer can deduct it from taxes. However, there are several provisions that must be in place before this deduction will be allowed. The people must be in separate households, the payment must be one that does not continue after the death of the recipient and the agreement must not specify that the alimony is not deductible or taxable. In 2017, the U.S. Tax Court also found that if the amount claimed as alimony is not specifically mentioned in the legal divorce or separation agreement, it cannot be deducted.

The court concluded this after reviewing a case in which a man claimed as alimony a portion of a bonus that he received the year prior to his divorce. He and his wife had signed an agreement that the bonus was community property and would thus be split.

However, in a separate divorce agreement that listed the amount of alimony the man would pay each month and an additional amount he would pay if his income went above a certain level, there was no mention of the bonus. It was also not part of a separation agreement. The deduction was denied

Spousal support is not an issue in every divorce. If both spouses work outside the home and have roughly equal incomes, it is unlikely that one will be required to pay alimony to the other. However, it may be important for a person who has been out of the workforce for a long time as the primary caregiver for children. Even if both spouses do work outside the home, if there is a large income disparity between two, the higher earner might owe alimony to the other one.

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