Divorced Connecticut couples paying alimony will do well to learn about the taxes involved with making and receiving payments.
While divorce cases are different throughout the state of Connecticut, one common subject is alimony. No matter if a person is paying or receiving alimony, he or she should understand how taxes work with such payments.
How the payer’s taxes are impacted
Those who pay alimony receive a tax deduction. Payments are taken out of the person’s income, and the payer must make sure to note the alimony recipient’s Social Security number on the proper tax form to avoid a penalty. It is important for divorced people to remember that only alimony is tax deductible, not child support.
How the recipient’s taxes are impacted
Those who receive alimony have to count it as taxable income. Unlike income received through employment, taxes are not deducted from alimony. This means it is the recipient’s responsibility to either make estimated payments on her or his alimony throughout the year, or adjust the amount of taxes deducted from paychecks. Without making estimated payments or adjusting paycheck deductions, the recipient will likely owe the Internal Revenue Service money at the end of the year.
Know what’s not considered alimony
Just as it is important to know how alimony is taxed, it is equally important to know what is not considered alimony so that there is no confusion about what to include on tax forms. Examples of payments that do not fall under the definition of alimony include the following:
● Utilizing property that belongs to the alimony payer
● Child support
● Funds needed for the upkeep of the alimony payer’s real estate property
● Money that is an ex-spouse’s portion of income earned through shared real estate
While child support is not classified as alimony, there are situations in which paying more than required for child support is considered contributing that extra percentage to alimony payments. In any case, those who pay both child support and alimony should know that their payments first go toward the amount owed for child support.
Additional considerations with alimony
There are situations in which divorced couples do not mandate alimony payments between each other. When this is the case, the ex-spouses should know that only mandated alimony payments qualify for tax deductions or taxable income. If one person decides to make payments of her or his free will, the funds are not legally considered alimony and do not qualify for taxation one way or another.
Unallocated Alimony and Child Support
In certain situations, alimony and child support may be combined. These payments are treated as alimony for tax purposes, which means they are deductible by the payer and includable by the payee.
Getting a divorce in Connecticut comes with no ending of questions and considerations. In terms of paying taxes on alimony, it is best to get the latest information from a family law attorney and CPA who is familiar with alimony taxation. Our lawyers at Broder & Orland LLC are well versed on the types of support payments and related tax considerations.