Is Alimony Always Tax Deductible?

Generally, alimony is tax deductible to the payor and taxable income to the recipient. The purpose of this tax treatment is to treat the alimony as a transfer of income from payor to recipient. However, there are requirements for alimony payments to qualify for this favorable tax treatment.

The IRS defines alimony as: "a payment to or for a spouse or former spouse under a divorce or separation instrument. It does not include voluntary payments that are not made under a divorce or separation instrument."

Agreements executed after 1984 have different requirements than agreements executed before 1985. For purposes of this post we are only going to discuss post-1984 agreements:

Under a post-1984 agreement, judgment, or order, alimony is only tax-deductible to the payor if the following requirements are met:

The parties file separate tax returns;
The payments are in cash;
The agreement, judgment or decree does not indicate that the payments are not alimony;
The spouses are not members of the same household at the time the payments are made. This requirement applies only if the spouses are legally separated under a decree of divorce or separate maintenance (i.e. doesn't apply to temporary orders). You are not treated as members of the same household if one of you is preparing to leave the household and does leave no later than 1 month after the date of the payment;
Payments end upon death of the recipient spouse; and
The payment is not treated as child support (which includes making the payment contingent on an event relating to your child).

For more information and examples that pass or fail these requirements read IRS Publication 504.

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