If you either pay or receive alimony in Florida, it’s important to know the rules for filing your taxes. Learn how you can actually benefit from the tax laws if you understand and follow the guidelines.
First let’s talk about how alimony works in general in our state.
Understanding the Basics of Alimony in Florida
After divorce or marital separation, alimony is the money paid by one spouse to the other. Alimony helps support the spouse who earns the least amount of money after divorce occurs.
The Florida court system determines alimony payments on a variety of criteria, including the following:
- The financial need of the receiving spouse
- The couple’s standard of living while married
- How long the marriage lasted
- Each spouse’s age, physical health, and emotional health
- The marital and nonmarital assets
- Each spouse’s earning ability and contributions to the marriage
The Impact of Alimony on Your Taxes
Here’s the simple version:
- The paying spouse can deduct alimony payments on their taxes under certain conditions.
- The receiving spouse is required to report the alimony payments as income.
Many former couples (paying and receiving) actually experience a tax benefit from this arrangement. How so?
It’s easiest to see the tax benefits by looking at an example.
Before divorce, let’s say one spouse makes an income of $200,000 and the other spouse does not work. This places the couple in a 25 percent tax bracket,
After divorce, the working spouse pays $80,000 in alimony to the non-working spouse. Based on this, the non-working spouse will owe $16,000 in taxes.
The paying spouse will then have a tax liability of $120,000 per year, which drops them into the 20 percent tax bracket.
Between both spouses, the tax savings is over $10,000 per year.
What You Need to Do to Get These Alimony Tax Benefits
These tax benefits aren’t automatic. They must be accurately reported on IRS Form 1040. Both spouses must file correctly under the following requirements:
- No joint return is filed between the spouses or former spouses.
- Alimony payments are made in cash, check, or money order, not in in-kind gifts or property. Payments are made according to the divorce decree, judgment, or settlement terms.
- You must live in separate households.
- Alimony payments must be made until the receiving spouse’s death occurs.
- No extra payments are made in advance of payments due later.
Additionally, some payments that are made after a divorce do not qualify as alimony. Here are the payments that do not qualify in Florida:
- Child support
- Property settlements not made in cash
- Upkeep or use of paying spouse’s property
- Spousal portion of community property income
- Any voluntary payments not set forth by the divorce or separation decree
If you are a paying spouse, it’s not necessary to itemize deductions to claim alimony payments. Simply use line 34a on IRS Form 1040 for reporting. However, you are required to list your former spouse’s social security number on tax forms. If you don’t list the number, your deduction may not be allowed and you could be charged a $50 fee.
If you are receiving alimony payments, all alimony payments must be reported as income on line 11 of IRS Form 1040. You must provide your social security number to avoid paying a $50 penalty.
If you have questions about paying alimony, receiving alimony payments, or how to report alimony on your taxes, get in touch with an experienced Florida divorce lawyer to assist you. They will be able to explain how the law applies to your situation and help you know how alimony payments will affect your personal tax liability.