Treatment Of Alimony And Separate Maintenance Payments
Pursuant to MCL 205.6a, a taxpayer may rely on a Revenue Administrative Bulletin issued by the Department of Treasury after September 30, 2006 and shall not be penalized for that reliance until the bulletin is revoked in writing. However, reliance by the taxpayer is limited to issues addressed in the bulletin for tax periods up to the effective date of an amendment to the law upon which the bulletin is based or for tax periods up to the date of a final order of a court of competent jurisdiction for which all rights of appeal have been exhausted or have expired that overrules or modifies the law upon which the bulletin is based.
RAB 2021-19. This Revenue Administrative Bulletin addresses: the treatment of alimony and separate maintenance deductions under Part 1 of the Michigan Income Tax Act the effect of the federal Tax Cuts and Jobs Act on alimony and separate maintenance deductions and the TCJA’s effect on whether alimony is included in total household resources for purposes of the homestead property tax credit and the home heating credit.
How To Claim The Deduction
You can deduct alimony payments if you did not itemize deductions on your return. Instead, use IRS Form 1040, which is the standard income tax form to claim any deductions. Do not use the 1040EZ Form or 1040A Form. As part of the claim, you must provide your former spouses social security number.
If you are currently going through a divorce with alimony being an issue, you must speak with a tax law or family law attorney before settling or asking the court to determine the alimony problem with you. Paying spouses must be evaluated to determine the impact based on annual income and how the payments affect the recipient.
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The above article is intended to provide generalized financial information designed to educate a broad segment of the public it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.
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What Qualifies For Innocent Spouse Relief
Who qualifies for Innocent Spouse Relief?
- You were/are married and filed a joint tax return.
- Your former/current spouse improperly reported income on a joint return.
- You can prove that when you signed said joint return, you either didnt know or had no reason to know that the income was incorrectly reported.
What Counts As Income For The Purpose Of Calculating Spousal Support In New York
Income from all sources is what is in the law. For example, if youre a W-2 wage-earner, theres that.
If you receive interest from investments, thats income.
If you rent part of your house to a tenant, thats income. If you own properties where you have multiple tenants, thats income.
When it comes to things like that, the court can decide that the income you show on tax returns, after expenses are paid, may not be the income that are used for calculations, because a person can manipulate the income, and reduce the income by showing more expenses.
The court can impute income to you to make it more equitable. If a person who is running a pizzeria, owns a pizzeria, for example, and most of its cash, and he reports $30,000 a year in income, and the guy lives in a $2 million house, you know theres something wrong.
The court can look at that and say, No, no, no, no, no. You dont make $30,000. You make $300,000.
Other kinds of income? Any income from all sources.
If you were receiving a payout from a personal injury case, which part of it was not pain and suffering, part of it was loss earning. For example, when you get a jury verdict, they say, a million dollars, with $300,000 being a loss of income, and $700,000 is pain and suffering. So $300,000 is then attributable to income.
Its a broad scope. Anything that comes to you by way of income is included.
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Divorces Before 2019 Can Still Qualify
If you divorced before 2019, you may still be able to take tax deduction advantages. However, be cautious about modifying your spousal support agreement. You wouldn’t want to accidentally lose your alimony tax deduction benefit. Before making changes to a pre-2019 agreement, it is advisable to consult an attorney with expertise in tax matters.
Even if you are grandfathered in, you won’t qualify for an alimony deduction unless you meet all the requirements mandated by the Internal Revenue Service , including:
- You don’t file a joint return with your former spouse
- Your alimony payment is in cash
- The divorce or separation agreement does not say the payment is not alimony
- Your payment is not treated as child support or a property settlement
- The payor is not liable to make alimony payments after the death of the recipient spouse
- If legally separated under a decree of divorce or separate maintenance, you and your former spouse are not members of the same household when you make the payment
What Replaced Alimony Deductions
If you are required to pay alimony and you dont qualify for the deduction, you should know there was no replacement.
There were, however, some increases in other credits as well as options available to divorced couples.
The current Child Tax Credit offers you $2,000 per qualifying child under 17 with up to $1,400 refundable. You can also earn more money before the credit begins to shrink . However, the credit is only available to the custodial parent as a general rule .
If you are the non-custodial parent, you can also claim these credits. However, you can only do so if the custodial parent doesnt claim the credit and signs a waiver agreeing not to claim the child. If you have two children, you can request one, and your spouse can claim the other. You cant both claim both.
Additionally, if you are the custodial parent, you can file for head of household, which is more favorable than filing as a single person.
Your childrens medical expenses are also tax-deductible, even if you only have partial custody of the child. From 2019, you can deduct costs exceeding 10 percent of your income.
If you divide or sell property, make sure you and your ex-spouse do so during a period thats most favorable to your tax return. Talk to your accountant for more details.
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Avoid Alimony Front Loading
In this context, front-loading means making advance payments for alimony thats due later. Be sure to understand IRS guidelines against front-loading.
You shouldnt pay excessively high amounts in alimony in the first three years of your divorce. The IRS can tax the excess in the third year of separation.
You cannot deduct alimony payments if you pay a joint tax return with the recipient.
What If Divorce Or Separation Agreement Modified After 2018
The new law applies to any divorce settlement agreement executed in 2018, and modified after December 31, 2018, provides the modification satisfies the following conditions:
- modifies the terms and conditions of the alimony and
- The settlement agreement explicitly says that the alimony or separate maintenance payments are not deductible by the payer spouse or includable in the income of the receiving spouse.
Alimony Paid Through Asset Other Than Cash
Any asset that is transferred without any consideration prior to the divorce will be exempted from tax in the hands of the recipient. The reasoning behind this is that the asset so transferred will be treated as a gift received from relatives and thereby exempt as per the provisions of Section 56 of the Income Tax Act, 1961. However, post-divorce, the relative aspect of the transaction ceases to exist, and therefore, such transfer is referred to as taxable in the hands of the recipient.
Further, as long as the marriage exists, any income earned from the asset transferred will be clubbed along with the income of the spouse who transferred the asset. The recipient will not have any tax implications in this case. However, once the divorce has taken place and the marriage ceases to exist, the subsequent income earned on that asset will be taxable in the hands of the recipient spouse only.
Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.
Find Out If This Guide For You
This guide is for you if, under a court order or a written agreement, you are in either of the following situations:
- You made support payments.
- You received support payments.
If you do not have a court order or written agreement, the payments are not subject to the tax rules that apply to support payments.
This guide gives information on:
- the different tax rules for an order or agreement made before May 1997 or after April 1997
- the exceptions that may apply to you
- how to fill out your tax return
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Can I Terminate Alimony Payments
The loss of the deduction is a blow to anyone who must now pay alimony and wasnt grandfathered into the deduction.
Your ability to terminate alimony payments depends on your divorce agreement and your state. Some states allow you to stop paying alimony when your supported ex-spouse cohabitates with a new partner. If your partner becomes financially self-sufficient, some states may allow you to end your agreement. Your alimony obligation almost always ends when your ex-spouse gets remarried.
If the alimony becomes too much without the deduction, you need to re-open your divorce settlement and negotiate an agreement that acknowledges the impact on your finances.
Filing Status For Taxes After Divorce
When you get divorced, your tax filing status is going to change. The date in question is December 31st of each year. If your divorce isnt final by December 31st, you may still file jointly or married filing separately for that year. But if your divorce is final on or before December 31st, you may no longer use a joint filing status. In that case, you switch to head of household status or single status going forward.
Do I Qualify To File Taxes As Head of Household After My Divorce?
You qualify to file taxes as head of household after your divorce if you meet the following criteria:
- You are legally unmarried on the last day of the year
- You pay more than half the costs of maintaining your household, including taxes, insurance, utilities and food
- A qualifying dependent has lived with you for six months or more of the year
If you qualify to file as head of household, it can give you a larger standard deduction than filing as a single . Its usually a good idea to file as head of household if you qualify, as it can create significant tax savings.
Can You Still File Taxes Together if You Are Divorced?
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Is Alimony Deductible Or Not It Depends
If youre getting divorced, you may be in for an unpleasant tax surprise at tax return time: You wont be able to deduct any alimony that you pay as part of the divorce decree. On the other hand, if youre in line to receive alimony, you dont have to …
If youre getting divorced, you may be in for an unpleasant tax surprise at tax return time: You wont be able to deduct any alimony that you pay as part of the divorce decree. On the other hand, if youre in line to receive alimony, you dont have to report those payments as taxable income. These corresponding tax provisions were included in the Tax Cuts and Jobs Act passed at the end of 2017.
However, you still may be able to write off alimony payments made under a decree that went into effect prior to 2019. Those deductions are especially valuable to alimony payors because they are claimed above the line and reduce adjusted gross income for other tax purposes.
Lets take a closer look at the rules. Prior to the TCJA, you could deduct alimony paid pursuant to a divorce or separation agreement if certain conditions were met, while the alimony received was treated as taxable income. In contrast, child supports werent tax deductible by the payor, nor were they taxable to the recipient.
The IRS established the following requirements for treating alimony payments as being deductible.
How Does The Irs Define Alimony Payments
To qualify as an alimony payment, payments to an ex-spouse must meet certain criteria. Requirements include the following:
- A joint tax return is not filed with your former spouse
- Disbursements are made by cash, check, or money order
- Payments are made for an ex-spouse under a divorce or separation agreement
- Liability for the payment doesnt extend past the death of the ex-spouse
- Payment is not for child support or a property settlement
If all requirements are met, the IRS defines the payments as alimony for tax purposes.
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Other Things To Keep In Mind
Some divorced spouses pay alimony to their ex-spouse voluntarily as part of a casual agreement. This kind of alimony is not tax deductible, as you can only write off court ordered alimony. Another thing that is important to keep in mind is that you will need to have your ex-spouses Social Security number in order to claim alimony. If your alimony records are false or you dont have your spouses Social Security number, the IRS may deny your tax deduction and fine you.
Is Alimony Taxable Income After December 2018
The alimony is not taxable now because section 11051 of the Tax Cuts and Jobs Act law relating to the taxation of alimony or divorce settlement was amended. So, consequently, section 71 of IRC was repealed.
It does not matter when did you file for divorce, if your divorce settlement was finalized by the court on or after January 1, 2019, the Tax Cuts and Jobs Act will have an impact on the taxation of alimony payments because the TCJA ended the tax deduction benefit and reporting requirements for support until at least 2025 Alimony payments whether for the spousal benefit or for the child support, will not be taxable in hands of the recipient and no deduction or credit for the paying spouse and no income reporting requirement for the recipient.
Therefore, any alimony or separate maintenance payments made under a divorce or separation agreement which is executed on 1st January 2019 or later is fully tax-free in the hand of the recipient spouse. For this, fundamental change after 1st Jan 2019, the IRS no longer requires alimony recipients to declare the receipts as income.
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Whats The Impact Of Cohabitation On Alimony
Its a misconception by lawyers and laypeople that cohabitation automatically terminates spousal support. Thats wrong. Thats not in the law, but as a custom, its written into agreements.
However, the law does say that if one person is holding out, thats the term, holding out, as the spouse of another, then it could be terminated.
For example, John and Mary are boyfriend and girlfriend. Mary is receiving spousal support from her former husband. They move in together and get a joint checking account. They check into hotels as John and Mary Jones, and other things that a reasonable person could look at and say, Theyre married.
She wants to appear married to this guy. Theyre doing everything but legally getting married.
Her ex-husband could go to court to try to prove that shes holding out as the spouse of another and try to get her maintenance terminated.
People hire private investigators to do that, to follow people and see what they do, in order to try to get out of their spousal support obligations.
Pay Alimony According To The Divorce Document
You must make alimony payments according to the rules stipulated in your divorce papers. The document could be a separation agreement, marital settlement agreement, divorce judgment, court order, or temporary support order.
Ensure your documents indicate the amount you should pay and a clear description of the payment alimony, spousal maintenance, and spousal support. The papers must also describe the amount as deductible by the paying spouse.
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Alimony And Taxes After Divorce
Many divorces result in an award of alimony. For divorces that are finalized after January 1st, 2019, alimony does not play a role in taxes after divorce. The spouse that pays it does not deduct it. The spouse that receives alimony does not claim it as income on taxes. Spouses need to factor this in when they determine the appropriate award of support.
How Is Alimony Taxed in 2021?
In 2021, the person who pays the alimony counts it as their income. The person who receives the alimony does not include it in their income. In 2021, alimony is not factored into taxes. Instead, the person who makes the payment still counts the amount that they pay in their own income, and the person who receives it does not have to report it.