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Paying or receiving spousal support? Know the tax implications

| Jun 9, 2016 | Spousal and Child Support

In Tennessee and other states, spousal support is the transfer of funds from one spouse to the other for his or her maintenance and support. Once a spousal support agreement is made, spouses seem to think that it the end of it once and for all. Few give any thought to the tax implications alimony payments can cause, especially for the person who will be receiving the support.

Aside from having to make the alimony payments, the paying spouse gets a tax break for alimony. This means the money paid out can be deducted from his or her taxes. It is the spouse who receives the support that can be blindsided by tax implications.

For both spouses, here are a few key things to understand about taxes and spousal support.

Contrary to what many believe, the taxing of spousal support is under the jurisdiction of the Internal Revenue Service and cannot be decided in a court order.

Whichever spouse receives the alimony is required to report this amount on a tax return. It is important to note that since the spouse who pays the support can deduct the amount, the IRS probably already knows how much alimony you are receiving. Attempting to deceive the IRS is a terrible idea.

If a couple chooses to settle on an upfront lump sum of spousal support instead of regular payments, this amount is neither tax deductible by the payor nor is it taxable income for the payee. There are additional financial complications associated with lump sum payments, and as such, we urge you to consider the matter carefully and seek an attorney’s guidance.

Like all of the major issues that surround divorce, spousal support requires thought and careful consideration. Please visit our legal website to look at additional matters surrounding spousal support in Tennessee.


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