In New Jersey and elsewhere, alimony is the transfer of money to a former or soon to be former spouse for his or her support and maintenance. This transfer typically results in a reduction in the taxable income for the payer and an increase for the payee. For alimony to be deducted from a paying spouse’s gross income, eight factors must be met. First, all spousal support payments must be made pursuant to a written decree that cannot state the payments do not qualify as alimony for tax purposes. In addition, the divorcing or former spouses may not reside together at the time the payments are made or file a joint income tax return. All alimony payments must be made to, or on behalf of, a former spouse in cash or using a cash equivalent and may not be referred to or deemed child support by a court. Finally, the spousal support obligation may not survive the payee’s death.
Whenever an alimony payer is permitted to deduct spousal support payments from his or her gross income, the recipient must report the disbursements to the federal government as taxable income. Despite this, child support payments will not reduce taxable income for the payer, nor will they increase taxable income for the recipient. This differential tax treatment occurs because child support is paid for the benefit of the former couple’s children.
Similarly, an individual may deduct alimony and separate maintenance payments made pursuant to a court decree, but child support payments may not be deducted under New Jersey law. Although a parent may be entitled to deduct any health insurance premiums paid on behalf of his or her child under federal law, such payments may only be deducted in New Jersey if the child was the payer’s dependent during the tax year.
In some situations, alimony payments may be subject to recapture under federal law. Recapture occurs when spousal support payments are front-loaded during the first three years after divorce or separation. If an alimony payment decreases significantly after this time, the paying spouse will normally be required to pay income taxes on a portion of the deducted support payments. The purpose of the recapture law is to deter divorcing spouses from improperly characterizing a property settlement or property transfer as alimony in order to receive a tax deduction.
Exceptions to the recapture rule include circumstances when alimony is awarded as a percentage of a paying spouse’s income and that income fluctuates significantly each year, spousal support payments made pursuant to a temporary order, or termination of payments based on changed circumstances, such as a recipient’s remarriage or death.
For high-quality legal representation and answers about your divorce case, you should talk to the New Jersey family law lawyers at Goldstein Law Group. To request a confidential consultation with an experienced divorce attorney, contact our knowledgeable lawyers through our website or give us a call at 732-967-6777.
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New Jersey Supreme Court Rules Open Durational Alimony Awards Must be Based on Statutory Factors, September 10, 2015, New Jersey Divorce Lawyers Blog