Pennsylvania: Taxes on Alimony – who pays them?

If you pay or receive alimony, who pays the taxes?

The quick answer under federal tax law is: if you are receiving “qualifying” alimony payments, you must declare the payments as income and pay taxes on the amount received.

If you are making the alimony payments, you are able to deduct the amount you have paid in “qualifying” alimony payments on your tax return.

Yet, this is not the end of the story. As discussed in previous blogs, alimony is not automatic in Pennsylvania. It can be negotiated between the spouses during divorce negotiations (particularly during mediated or collaborative law divorces), or, in litigated cases, it can be determined by a Judge, who must consider 17 statutory factors.

It is worth a couple’s time to study federal tax law – and I highly suggest consulting a financial or accounting professional on this matter – on the option of declaring alimony as qualified for taxation, or opting out and indicating to the IRS that such payments are not alimony for federal tax purposes.

Generally, most people designate alimony for federal tax purposes, in which case the IRS specifies that payments must be required by the divorce agreement; payor and recipient do not file a joint return; payments are by cash, check or money order; divorced spouses are not members of the same household; payments are not child support; and payments legally cease after the death of the recipient or payor.

Your state tax return may look different than your federal tax return as regards alimony. In Pennsylvania, according to the State Department of Revenue, alimony is not considered a form of income or an eligible deduction.

Thus, alimony, who receives it, how much and for how long it is paid, and how it is designated in your divorce settlement are essential factors in figuring out your tax responsibilities. Consulting a lawyer AND tax or financial professional is vital, especially before the final property settlement is signed