Paying (or not paying) taxes on Alimony (spousal support).

Alimony in Michigan

When every dollar counts, paying (or not paying) taxes on alimony can be a big deal.  Under Michigan law, “Alimony” is the same as “Spousal Support” and are payments made to support a spouse after divorce.  The primary factors in determining an amount of alimony are the age, education, length of marriage and income of the parties. However, there are no rigid rules regarding alimony.  You can click here for specific details on alimony.

Taxes on alimony (the basics)

As a general rule, alimony payments received are included in the gross income of the person receiving alimony.  This is set forth in 26 U.S. Code Section 71.

Similarly, alimony payments made are allowed as a deduction to the person paying alimony.  This is set forth in 26 U.S. Code Section 215.

Taxes on alimony (the details)

Addressing potential tax issues in your negotiations can avoid problems in the future. For example, many lawyers believe that alimony payments are always tax-deductible to the person paying spousal support and always taxable as income to the recipient. This is not the case and the rules set forth in Sections 71 and 215 have specific detailed exceptions.

In order for the person paying alimony to take the tax deduction, the alimony payments must conform to specific requirements set forth in Section 71.  The mere use of the word “alimony” or “spousal support” does not make the payment taxable or tax deductible.

Taxes on alimony (the exceptions)

The specific requirements for taking the tax deduction set forth in Section 71 are as follows:

  1. The alimony payments must be made in cash; (therefore, making a car payment in lieu of an alimony payment may not be tax deductible);
  2. The payments must be to a spouse or on behalf of a spouse;  (therefore, paying your spouse’s debt in lieu of alimony is not tax deductible);
  3. The payments must be made pursuant to a divorce or separate maintenance instrument;
  4. The payments must not be designated as non-qualifying by the payor or non-taxable to the recipient;  (therefore, inserting language in a judgment that the payments are not tax deductible will be enforced);
  5. Spouses may not be members of the same household;
  6. The payment must terminate at the recipient spouse’s death;
  7. Spouses may not file a joint return; and
  8. The payment cannot constitute child support.

Most lawyer understand the “general rules”.  In many cases, it is important to understand the details.  When examining taxes on alimony, the details may make or brake the bank.

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Paying (or not paying) taxes on Alimony (spousal support).
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Paying (or not paying) taxes on Alimony (spousal support).
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When every dollar counts, paying (or not paying) taxes on alimony can be a big deal. Under Michigan law, "Alimony" is the same as "Spousal Support" and are payments made to support a spouse after divorce.
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Findling Law, PLC
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