If your divorce or separation case looks like it might involve alimony (whether you pay or receive money), it is extremely important for you to understand the tax implications that alimony poses to divorcing couples here in Massachusetts. The basic rule that everyone should understand is that alimony is tax deductible to the payor and taxable as income to the recipient. This article explains some significant aspects of the relationship between alimony and taxes.
If you pay alimony to your spouse as part of a Massachusetts divorce or separation, the good news is that you are able to deduct this money from your total taxable income each year that you pay it. In other words, you do not have to pay taxes on the portion of your income that was given to your former spouse. While this doesn’t make paying alimony pleasant, it does help take some of the sting out of the process, while potentially even lowering your income tax bracket.
If you receive alimony, it is important that you understand that the money you are given from your former spouse is considered taxable income by the IRS. Accordingly, the IRS will expect you to pay income tax on those payments along with whatever income you have earned during the year. Because no taxes are withheld from these payments, you should factor the alimony payments into your tax planning strategy (such as setting aside a portion of your payments each month) to avoid an unpleasant surprise when you file your returns.
Source: “Paying or Receiving Alimony?,” published at IRS.gov.