The concept of alimony is seen in divorce or separation cases. Now, alimony from the point of view of the Internal Revenue Services (IRS) is the payment by a spouse or a former spouse, to the former better half, on the orders of a court, in compliance of law or enactment, rule or legislation, or a per-nuptial agreement or any other mutually accepted, valid and lawful agreement. Funds forwarded, non-monetary aid and other aid provided to the spouse or a former spouse, voluntarily, without the existence of obligation by law is not an alimony.
Thus for the purpose of your income tax and other tax related issues, for the IRS assessment, an alimony needs to be an obligation to pay. Broadly speaking, anything that comes under the definition of 'spousal support by obligation' is deemed to be an alimony. While filing the annual income tax return you might come across the term recapture rule, which may be applicable to you. In the following paragraphs, this rule has been explained.
Alimony Recapture Rule by the IRS
Now when it comes to the Internal Revenue Service, they do consider everything, every possibility, probability and situation there is and make provisions for the same. An alimony recapture is chiefly a situation or a probability that the payment of alimony has been reduced from the required amount or have stopped or terminated in the first 3 consecutive calendar years. In such a situation the recapture rule for alimony becomes applicable.
As per the rule, if a payer decreases or completely terminates the alimony payment in the first 3 years of its start, then for the income tax return of the 3rd year, a part of the previously claimed deductions payments (from taxable income), have to be included in the current year's income.
Similarly, the spouse who should be receiving the alimony, at the end of the third year, can deduct all the alimony amounts that were previously included in the income. The change in alimony should be at least $15,000 per annum in comparison with the second and the third year.
Treatment of Alimony as Per Income Tax Rules
Now the treatment of alimony has to be considered from both the sides, owing to the fact that income status on the income tax return of both the parties, is going to be affected.
- From the payer's point of view an alimony becomes a tax-deductible item irrespective of the itemization or standardization of deductions. This deduction can be claimed with the help of Form 1040 (line 31a and line 31b). It must be noted that the tax payers cannot claim the same with the help of Form 1040A or 1040EZ.
- From the receiver's point of view and the rules of IRS, an alimony reachieved is equivalent to income and is thus, included in income computation. Form 1040 (line 11) needs to used to report such an alimony received. It must be noted that it is compulsory to report any obligatory and legally mandated alimony, as an income. There are also some other rules for deductions but they cannot be availed without reporting this income.
In both the cases, it must be noted that either party must make use of the Social Security Number for the purpose of identification and failure to so would invite a certain fine ($50 as of date), plus the alimony deduction may be disallowed.
All court mandated and officially inducted changes in alimony are not to be accounted for in application of the rule. In addition to that, a worksheet which is available in Publication 504 can also be used to calculate the required amounts.