Connecticut couples whose divorce orders involve alimony need to be aware of how the payments are treated by the IRS for tax purposes. Unlike child support, which does not have to be reported as income and which cannot be claimed as a deduction, alimony payments must be reported by the recipient and can be deducted by the payor.
In order for the paying spouse to be able to claim a deduction for spousal maintenance, the payments must be made under an order of the court or through a separation agreement. They cannot be voluntary ones. If one combined payment is made for both court-ordered alimony and child support, only the portion of the payment that is earmarked as being for spousal maintenance may be deducted.
The IRS allows the deduction payments made to third parties on behalf of a recipient and pursuant to a court order. Allowable third-party payments include those made for life insurance, medical expenses, housing expenses and others. The IRS does not consider alimony to include non-cash property settlements, payments made to maintain the payer's property, payments made in order to use the payer's property or payments made that are considered the spouse's community income.
Alimony payments and their federal income tax treatment are important to consider, both for those who will receive it as well as those who will be required to pay it. Prospective recipients may want to talk with their family law attorneys about what payments need to be reported as income and which do not. Conversely, those who expect to pay alimony may want to obtain legal advice about what amounts they may be permitted to deduct under existing federal income tax law.