Many spouses who find themselves paying spousal support want to know the tax implications that are applied. In short, spousal support must be reported as taxable income by the recipient, and can be deducted by the paying spouse. Do not confuse this with child support, as it is neither taxable nor is it deductible.
If there is an increase in tax for the spouse receiving the payments, it can usually be offset by the significant tax savings by the paying spouse, and at that point, if deemed necessary, they can make an additional payment to the receiving spouse to make up the difference. So in short, yes, alimony is taxable, although you can arrange for it to be both non-taxable as well as nondeductible, but that would have to be included in the marital settlement agreement.
If you are receiving alimony and haven’t arranged for it to be nontaxable and nondeductible, then you should plan for it to be taxed and prepare you finances accordingly. One way to do this is if you have a paying job, you can increase withholding from your paycheck, to offset any impact of support payments. Because the math can be a bit complex, you can check the potential tax liability at the IRS website. Some find it helpful to speak with a tax professional, as they can help you figure out the ideal amount for both you and your former spouse that is making support payments.
If you are the one making alimony payments, you can list the payments as deductible on your income tax return. The IRS will be paying close attention to support payments for the first 3 years, as some newly divorced people try to mask property allocation or other obligations that resulted from the divorce agreement. Also, keep in mind child support payments are not tax deductible, and if your spousal support is set to end when the children go to college, the IRS could consider the payments as child support instead of spousal, so for your protection, in the agreement, try not to have the alimony termination connected to the children in any way.