Tax Implications of Spousal Support in Mesa

For the longest time, spousal maintenance, spousal support, or alimony was deductible for the payor and taxed for the person who received it. As of early 2018, spousal maintenance is paid with post-tax dollars.

This change in federal law was made because spousal support was not being reported by recipients, and the government wasn’t collecting the right amount of taxes as a result. Usually, the person paying spousal maintenance is in a higher tax bracket than the person receiving support, which previously meant the federal government was receiving fewer overall dollars from the money that was exchanged for alimony.

This means that a person paying their ex’s spousal maintenance would cover the tax, not the recipient. This change took place at the federal level and has affected the amount of spousal maintenance awards in Mesa and throughout the State of Arizona. For this reason, it is important to understand the tax implications of spousal support in Mesa before entering litigation with your spouse.

Paying Taxes on Spousal Maintenance

If a person is paying spousal support, it cannot be listed as a tax deduction from their income. They are required by law to pay taxes on the money they pay in spousal maintenance as well as for child support.

The person who receives the money does so without any tax consequences. Also, there is no need for the person paying spousal maintenance to be capturing that in receipts or proving that for tax reasons because they no longer get any tax breaks.

Rental Income

A person who receives a rental property upon divorce would have to pay taxes on the rental income they receive. That is separate from spousal maintenance, which is not deductible for the payor or taxable for the recipient.

Qualifying Factors

For a payment to qualify as spousal maintenance or alimony in Mesa, it has to be incremental, and it cannot be property. It can only be actual dollars exchanged between former spouses.

Additionally, the payor and recipient cannot live in the same household. The payments cannot be used as child support, and there cannot be any liability after death. Any financial support payments which continue after either spouse’s death would not be considered alimony.

If they are dividing property and one person owns a business and has to pay their ex-spouse money for their interest in the company, that would be considered property division. It is not taxable or deductible and does not qualify as spousal support.

Cash payments to a third party on behalf of one spouse may or may not be considered spousal maintenance. For example, if somebody is agreeing to pay their medical bills, car payment, or house payments, that may or may not qualify as alimony.

There was previously a tax benefit when someone was paying spousal maintenance because they could deduct it. However, since that went away, all of the creative ways to use spousal maintenance to avoid paying taxes in Mesa is no longer a factor.

Learn More about Tax Implications of Spousal Support in Mesa

It is important to speak with a tax specialist when divorcing as well as an attorney about the tax implications of spousal support in Mesa because there are things like the underlying basis of property value that gets transferred upon divorce. For more information on these important factors in a divorce and how they can impact your taxes, call our firm today.