Any spousal support obligation that includes a provision indicating termination upon the death of either party or the remarriage of the recipient is presumed to be tax-deductible by the person who pays the money, and it is presumed to be possible income by the recipient of support.

However, any person who receives or pays spousal support should confer with an experienced Virginia alimony lawyer who has experience understanding taxes in these cases, as well as an accountant or tax expert to make sure they fully understand the tax implications of the spousal support in Virginia currently, and in the future.

How to Qualify

For the purpose of alimony, being tax-deductible by the payer and taxable income by the payee, the alimony must be payable between two parties who are not residing together. The payments typically have to be directly from the payer to the payee in cash. In some circumstances, payments can be made on behalf of the recipient for certain necessities, such as a mortgage payment. The payment must be pursuant to a written separation agreement or a divorce order.

Taxes and Spousal Support

The general presumption of spousal support and taxes in Virginia is that the person paying gets to deduct the spousal support on their taxes while the person receiving it has to include it in their income. For example, when a person in need of support is negotiating a spousal support obligation, they should determine how much money they need to meet their monthly expenses. It is important to understand that the full gross amount of support is not likely to be the actual amount that they get to keep as a result of tax rules.

Typically, payments of spousal support are tax-deductible for the person making the payment. Spousal support payments are taxable income in Virginia to the person receiving the payment. Whether someone is the payer or recipient of alimony, it is important to discuss the consequences with a tax expert. There are certain circumstances where spousal support may be deductible in the short term but the IRS may seek repayment of some of that money in the future. That would be under something called the “recapture rule.”

Lump Sum Payments

Parties can agree for spousal support to be paid on a monthly or other periodic basis or in terms of a lump sum. If spousal support is identified in an agreement or in order multiple lump-sum spousal support payments, then support may be something that can be treated in the same way for tax purposes as a monthly payment would be.

However, there are more likely to be pitfalls that might impact the tax-deductibility of spousal support in cases where spousal support is paid in one or more lump sum payments.  If someone is paying or receiving support as one or more lump sum payments, it is critical that they understand the tax implications for that, particularly over time.

Tax Implications

An attorney who is dealing with alimony or a case that involves any aspect of spousal support should be talking to the client about the tax implications for the payer or recipient, depending on the client.

The attorney should also look at the amount of the payments and if there are built-in reductions in payments over a period of time. Then the attorney should examine the IRS rules to create an alimony framework that does not trigger the recapture rule and therefore change the tax implications after a period of time.