The tax treatment of alimony payments is determined by federal law (the Internal Revenue Code), not by state law. Several factors must be present to enable the person paying alimony (the payor) to deduct the payments on his or her tax return (and, conversely, to require the recipient to report it as income on his or her tax return). The requirements are:
- The payments must be in the form of a check, cash or some equivalent. Transfers of property do not qualify.
- The payments must be made pursuant to a written document – either a court order or a written agreement. Verbal agreements or understandings do not qualify.
- In the agreement, the payments are not designated as nondeductible by the payor and non-includable in the recipient’s income).
- The recipient and the payor cannot occupy the same household.
- The payments must end upon the death of the recipient (note, there is no similar requirement that the payments end upon the death of the payor).
- The payments are not designated as child support and are not otherwise “disguised” child support payments (in other words, if there are express contingencies that make it appear that the payments are in fact child support payments, they are not considered alimony).
- The payor and recipient cannot file joint tax returns
As with any other issues arising from your separation or divorce, you should discuss these issues with a North Carolina Family Law Specialist. Feel free to contact me, Monty Beck, Western North Carolina Family Law Specialist to discuss these issues.