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What to know about the tax implications of alimony payments

Often times when people in Denver get divorced, one of the parties ends up paying the other a monthly amount known as alimony. In some places this may also be referred to as spousal support. When this happens, it affects that tax situation of both people so it is important to understand what obligations they face.

In order for a payment to qualify as alimony, it must first meet a few criteria. According to Forbes, some of these include:

  • The payments cannot be voluntary
  • The parties must be divorced or separated
  • The two parties cannot be living together, even if they are divorced
  • An official agreement must be in place with the court that requires the payments

It is important to note that alimony payments are entirely separate from child support payments. Payments that are made as child support are not taxable and cannot be deducted by either party. In addition, if a couple files a joint tax return they cannot also claim alimony for that tax year.

While the person who has to shell out the money each month may feel like they are getting the short end of the stick, the good news is that the alimony payments they make are deductible from their taxable income come tax time according to Bankrate. Meanwhile, the person who receives the alimony payments must report the money they receive as income and pay taxes on it accordingly. In order to make sure that nobody cheats, the Internal Revenue Service requires the payor to include their ex’s social security number when filing so that it can cross-reference both returns and ensure that everything was reported.

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