alimony and taxes

[marcsmom]

thanks for all the energy; let me explain

I was married to my husband for 28 yrs. Discovered he had a second life, confronted him, he beat the crap out of me.

He has a lawyer, but she ditched him when the judge ordered temp support of $1000 every two weeks. She'd promised him he'd get off with $500 a month. Anyway, he pays what he wants when he wants, so I'm making a motion for an income deduction order and filing it today.

We have 7 children. He's mad at them bc they helped me leave. We are poor people. Well, I take that back. Apparently there was plenty of money for him to pay for his extracurricular activities. Yes, I'm pissed.

I was the major breadwinner in our family for the first 15 yrs. Eventually he got a decent job, and by Oct 2003, he asked me to leave my government job of 17 yrs. and move to FL with him and not work.

At the time, I didn't know it was because he needed to isolate me.

Anyway, I wasn't trying to cheat the IRS. It's just that if I have to pay taxes on this $2000, it turns out to be $1400. I thought I read where we could just agree not to claim it or deduct it.

Yes, I'm bitter. I only want from him what the law says I can have.

 

[mistoffolees]

I was married to my husband for 28 yrs. Discovered he had a second life, confronted him, he beat the crap out of me.

He has a lawyer, but she ditched him when the judge ordered temp support of $1000 every two weeks. She'd promised him he'd get off with $500 a month. Anyway, he pays what he wants when he wants, so I'm making a motion for an income deduction order and filing it today.

We have 7 children. He's mad at them bc they helped me leave. We are poor people. Well, I take that back. Apparently there was plenty of money for him to pay for his extracurricular activities. Yes, I'm pissed.

I was the major breadwinner in our family for the first 15 yrs. Eventually he got a decent job, and by Oct 2003, he asked me to leave my government job of 17 yrs. and move to FL with him and not work.

At the time, I didn't know it was because he needed to isolate me.

Anyway, I wasn't trying to cheat the IRS. It's just that if I have to pay taxes on this $2000, it turns out to be $1400. I thought I read where we could just agree not to claim it or deduct it.

Yes, I'm bitter. I only want from him what the law says I can have.

Since you don't have a final order yet, you can word it in such a way that it would not be deductible to him or taxable to you. See the above link for the IRS requirements on deductibility. If your order doesn't meet those requirements, he can't deduct it and you don't have to declare it. That, of course, assumes that he would agree with that type of wording. His attorney may insist on wording that meets the IRS requirements so that he can deduct it.

Your math doesn't seem right, though. How much is your income? Unless you have a pretty substantial income of your own, you're not likely to end up paying 30% tax rate.

 

[LdiJ]

It doesn't matter. If it's deductible for the payor, then it's taxable to the recipient and vice versa.

The point is that it is entirely possible to have alimony that can not legally be deducted and can therefore not be considered taxable income to the recipient.

It doesn't make sense to me, either. Even if the payor wanted to be nice to the recipient, they would be better off to agree to a higher amount of alimony and go ahead and deduct it (for payor) and declare it (for recipient). As long as the payor is in a higher tax bracket, this would make more sense.

On the bolded...I am going to agree with both sides on this one. If it is not legally deductible as alimony under the tax code, then it is not alimony as defined by the tax code. However, its possible that someone could call something alimony, in another context other than that of the tax code.

Its similar to the word custody. Custody as defined by the tax code is a little different than custody as defined by state family law statutes.

 

[mistoffolees]

On the bolded...I am going to agree with both sides on this one. If it is not legally deductible as alimony under the tax code, then it is not alimony as defined by the tax code. However, its possible that someone could call something alimony, in another context other than that of the tax code.

Right. Which means that, quite simply, it is possible to have a divorce decree define something as alimony and have it still not be deductible to the payor or taxable to the recipient - which is what I've been saying all along.

There's a difference between 'alimony' and 'taxable alimony'. Technically, the latter is a subset of the former.

 

[LdiJ]

I was married to my husband for 28 yrs. Discovered he had a second life, confronted him, he beat the crap out of me.

He has a lawyer, but she ditched him when the judge ordered temp support of $1000 every two weeks. She'd promised him he'd get off with $500 a month. Anyway, he pays what he wants when he wants, so I'm making a motion for an income deduction order and filing it today.

We have 7 children. He's mad at them bc they helped me leave. We are poor people. Well, I take that back. Apparently there was plenty of money for him to pay for his extracurricular activities. Yes, I'm pissed.

I was the major breadwinner in our family for the first 15 yrs. Eventually he got a decent job, and by Oct 2003, he asked me to leave my government job of 17 yrs. and move to FL with him and not work.

At the time, I didn't know it was because he needed to isolate me.

Anyway, I wasn't trying to cheat the IRS. It's just that if I have to pay taxes on this $2000, it turns out to be $1400. I thought I read where we could just agree not to claim it or deduct it.

Yes, I'm bitter. I only want from him what the law says I can have.

Realistically, I doubt that you could convince him to give you 2k a month without him being able to deduct it. He would be a fool to agree to that.

Also, that 2k a month is unlikely to result in that much tax for you...at least not as long as your only income is that 2k a month. You don't have to pay social security or medicare taxes on that income. You only have to pay regular income tax. If you remain living in FL that means only federal income tax, and you would pay 10% on most of it, and 15% on the rest.

2k a month equals 24k for the year. After your standard deduction and personal exemption that is about 14650.00 in taxable income. The first 8kplus of that is taxed at 10% so 800.00 and the remaining 6650.00minus would be taxed at 15% so 997.00 total tax of 1797.00 which is only 148.00 a month of tax.

Even if you get a job fairly quickly that pays a decent amount you are unlikely to get out of the 25% marginal tax bracket and that would apply only to taxable income over 34k, or gross income over 43350.00

So, you are never going to hit 600.00 a month in tax on that alimony.

 

[marcsmom]

I wasn't dreaming---i found it!

According to this, IMHO, I was right:

Supreme Court of Florida
____________
No. SC01-586
____________
KAREN F. RYKIEL,
Petitioner,
vs.
STEPHEN A. RYKIEL,
Respondent.
[January 16, 2003]
SHAW, Senior Justice.
We have for review Rykiel v. Rykiel, 795 So. 2d 90 (Fla. 5th DCA 2000),
which expressly and directly conflicts with Almodovar v. Almodovar, 754 So. 2d
861 (Fla. 3d DCA 2000). We have jurisdiction. See art. V, § 3(b)(3), Fla. Const.
We quash Rykiel, as explained herein.
I. FACTS
Stephen Rykiel ("husband") appealed the final judgment in a divorce
proceeding. The Fifth District Court of Appeal (the “Fifth District”) reversed,
-2-
holding as follows:
Further, [an obvious error was] made with regard to the alimony
award. First, the court ordered that the award of permanent periodic
alimony be nontaxable to the receiving party, the former wife. This
award cannot stand because there is no legal authority which would
permit such a practice. Permanent periodic alimony (i.e., support
money) is taxable to the recipient under federal income tax law. 26
U.S.C.A. § 71. Its taxability cannot be changed by a state court
order. State law creates legal interests, but federal law determines how
those interests shall be taxed.
Rykiel, 795 So. 2d at 92.
On rehearing, the district court appended to the above passage the following
language:
We reject appellee’s argument, on rehearing, that the Deficit
Reduction Act of 1984, which substantially amended 26 U.S.C. § 71,
permits a state trial judge to order that support and maintenance will be
nontaxable to the recipient, or that temporary Treasury Regulation, 26
C.F.R. § 1.71-1T supports this argument. Section 71 was rewritten to
clarify when a continuing stream of payments were to be characterized
as maintenance, and thereby taxable, or a property distribution, which
is nontaxable.

In fact, 26 C.F.R. § 1.71-1T, A-8, specifically provides
that “the spouses may designate” that separate maintenance payments
are nondeductible by the payor and excludible from the gross income
of the payee. The term designate means “to make known directly.”
Richardson v. Commissioner of Internal Revenue, 125 F.3d 551, 556
(7th Cir. 1997). A reading of 26 U.S.C. § 71 and 26 C.F.R. § 1.71-
1T, as a whole, convinces us that only the parties may agree to this in
a written document, or on the record before the trial judge, which
would be reduced to judgment. The dicta cited by appellee in
Almodovar v. Almodovar, 754 So. 2d 861 (Fla. 3d DCA 2000), is
based upon 26 C.F.R. § 1.71-1T....

§ 71. Alimony and separate maintenance payments
(a) General rule
Gross income includes amounts received as alimony or separate
maintenance payments.
(b) Alimony or separate maintenance payments defined
For purposes of this section—
(1) In general
The term “alimony or separate maintenance payment” means
any payment in cash if—
(A) such payment is received by (or on behalf of) a spouse
under a divorce or separation instrument,
(B) the divorce or separation instrument does not designate
such payment as a payment which is not includible in gross income
under this section and not allowable as a deduction . . .
(C) in the case of an individual legally separated from his
spouse under a decree of divorce or of separate maintenance, the
payee spouse and the payor spouse are not members of the same
household at the time such payment is made, and
(D) there is no liability to make any such payment for any
period after the death of the payee spouse and there is no liability to
make any payment (in cash or property) as a substitute for such
payments after the death of the payee spouse.

The “question and answer” section in Temporary Treasury Regulation
§ 1.71-1T(b), Q8 & A8 (2001), addresses this matter further:
Q. How may spouses designate that payments otherwise
qualifying as alimony or separate maintenance payments shall be
excludible from the gross income of the payee and non-deductible by
the payor?
A. The spouses may designate that payments otherwise
qualifying as alimony or separate maintenance payments shall be
nondeductible by the payor and excludible from gross income by the
payee by so providing in a divorce or separation instrument . . . .
Temp. Treas. Reg. § 1.71-1T, Q8 & A8 (2001).

Sections 63 and 71 of the Code may be paraphrased as follows:
—Gross income is taxable.
—Gross income includes alimony.
—Alimony includes monetary payments made to a spouse
pursuant to a divorce instrument unless that instrument says that the
payments are not includible in gross income and not allowable as a
deduction.
—If the divorce instrument says that the payments are not
includible in gross income and not allowable as a deduction, then the
payments are not "alimony," are not included in gross income, and are
not taxable.
—A divorce instrument includes a divorce decree.
Under the above provisions, a divorce decree may provide that alimony
payments are to be excluded from the gross income of the payee and not deducted
by the payor. In such a case, the payments do not constitute “alimony” for tax
purposes, are not included in the gross income of the recipient, and are nontaxable
to the recipient.

As for why he'd agree, I think he will b/c he doesn't want to take a chance on the Judge in this case increasing his obligation even more than the original temporary order. He denied income from a side business in open court, and then sent me letter boasting how he spent that side money on his yearly "first-weekend-of-June" event at Disney World (Google it). And he's violated the order, and I'm unable to work right now due to the beating I got when I confronted him.

Anyway, I don't know when I'll be able to work again, although I want to. I was a professional until we lost everything to finance his secret life. Not working is further isolating me, which is what he wanted in the first place. It may not work, but I'm going to try for it anyway.

Thank you for all your responses.

 

[Ohiogal]

According to this, IMHO, I was right:




As for why he'd agree, I think he will b/c he doesn't want to take a chance on the Judge in this case increasing his obligation even more than the original temporary order. He denied income from a side business in open court, and then sent me letter boasting how he spent that side money on his yearly "first-weekend-of-June" event at Disney World (Google it). And he's violated the order, and I'm unable to work right now due to the beating I got when I confronted him.

Anyway, I don't know when I'll be able to work again, although I want to. I was a professional until we lost everything to finance his secret life. Not working is further isolating me, which is what he wanted in the first place. It may not work, but I'm going to try for it anyway.

Thank you for all your responses.

YOu think the court is going to care that you are accusing your husband of being gay? Seriously? Grow up. Did you report him to the police for beating you? Were you hospitalized for the beating? The fact that you are homophobic is your problem. You want paid for that?

 

[mistoffolees]

Realistically, I doubt that you could convince him to give you 2k a month without him being able to deduct it. He would be a fool to agree to that.

Also, that 2k a month is unlikely to result in that much tax for you...at least not as long as your only income is that 2k a month. You don't have to pay social security or medicare taxes on that income. You only have to pay regular income tax. If you remain living in FL that means only federal income tax, and you would pay 10% on most of it, and 15% on the rest.

2k a month equals 24k for the year. After your standard deduction and personal exemption that is about 14650.00 in taxable income. The first 8kplus of that is taxed at 10% so 800.00 and the remaining 6650.00minus would be taxed at 15% so 997.00 total tax of 1797.00 which is only 148.00 a month of tax.

Even if you get a job fairly quickly that pays a decent amount you are unlikely to get out of the 25% marginal tax bracket and that would apply only to taxable income over 34k, or gross income over 43350.00

So, you are never going to hit 600.00 a month in tax on that alimony.

I agree that it's not likely, but there's another way to look at it. I would look at the alimony as incremental income and taxed at the higher rate. That is, if OP is earning $50 K in salary and receiving $10 K in alimony, I would consider the salary to be taxed at the lower rate and the alimony as incremental income taxed at the highest marginal rate. I realize that it's a meaningless exercise because the money is fungible, but I can see where she came up with it.

Now, if her taxable income (after deductions) is over $34,500 (or $45,500 if filing as head of household), she'd be taxed at the 25% rate for Federal tax. That's the number I'd use. In some states, you'd have to add state income tax, so the total could easily be 33% on incremental income.

Of course, it's a non-issue. OP is not working now, so there likely to be little, if any, tax on the amount of alimony being discussed. In that case, it might make sense for them to agree to writing the order in such a way that the alimony is taxable to her and deductible to him. She's not likely to pay taxes anyway, so why not save him some money (and perhaps increase alimony slightly so they both benefit)?

 

[LdiJ]

I agree that it's not likely, but there's another way to look at it. I would look at the alimony as incremental income and taxed at the higher rate. That is, if OP is earning $50 K in salary and receiving $10 K in alimony, I would consider the salary to be taxed at the lower rate and the alimony as incremental income taxed at the highest marginal rate. I realize that it's a meaningless exercise because the money is fungible, but I can see where she came up with it.

Now, if her taxable income (after deductions) is over $34,500 (or $45,500 if filing as head of household), she'd be taxed at the 25% rate for Federal tax. That's the number I'd use. In some states, you'd have to add state income tax, so the total could easily be 33% on incremental income.

Of course, it's a non-issue. OP is not working now, so there likely to be little, if any, tax on the amount of alimony being discussed. In that case, it might make sense for them to agree to writing the order in such a way that the alimony is taxable to her and deductible to him. She's not likely to pay taxes anyway, so why not save him some money (and perhaps increase alimony slightly so they both benefit)?

She is not going to come out the gate making 50k a year after 5 years out of the workforce. Therefore the odds of ANY of her income hitting the 25% bracket is fairly slim. So based on considering alimony to be the top layer, I wouldn't consider more than 15%.

 

[mistoffolees]

She is not going to come out the gate making 50k a year after 5 years out of the workforce. Therefore the odds of ANY of her income hitting the 25% bracket is fairly slim. So based on considering alimony to be the top layer, I wouldn't consider more than 15%.

I'm not disagreeing. I said right from the start that I didn't see 33% going toward taxes. I was simply pointing out that it might be worth thinking of alimony as incremental income when figuring the tax burden - and also considering state taxes when they apply. More for the benefit of anyone else reading this.

In fact, OP isn't working at all right now, so she might not be paying ANY taxes on the alimony until she recovers enough to go back to work.


It just occurred to me - assuming that a criminal complaint was filed, OP should look into victim compensation to see if there's anything in her state that would allow her to be compensated for her injuries.

 

[Ohiogal]

I'm not disagreeing. I said right from the start that I didn't see 33% going toward taxes. I was simply pointing out that it might be worth thinking of alimony as incremental income when figuring the tax burden - and also considering state taxes when they apply. More for the benefit of anyone else reading this.

In fact, OP isn't working at all right now, so she might not be paying ANY taxes on the alimony until she recovers enough to go back to work.


It just occurred to me - assuming that a criminal complaint was filed, OP should look into victim compensation to see if there's anything in her state that would allow her to be compensated for her injuries.

She has not come back to say she filed a complaint. I still want to know why her accusing her husband of being gay matters one iota.

 

[LdiJ]

She has not come back to say she filed a complaint. I still want to know why her accusing her husband of being gay matters one iota.

Who said it did? Unless dissipation of marital assets went along with it, its pretty irrelevant.

 

[Ohiogal]

Who said it did? Unless dissipation of marital assets went along with it, its pretty irrelevant.

She threw in that her hubby is gay and she apparently figured it matters. All that shows me is that she is a homophobe. Hence I want to know why the OP thinks it matters.

 

[mistoffolees]

She threw in that her hubby is gay and she apparently figured it matters. All that shows me is that she is a homophobe. Hence I want to know why the OP thinks it matters.

Actually, the context in which she used it is more along the lines of blackmail. "If you don't allow us to set up the alimony to be non-taxable to me, I'll tell the world that you're gay" (although she didn't put it that bluntly). I don't think there was anything in her post that suggested that the court would care.

The funny part is that she's probably wasting her time. Chances are that she wouldn't be paying much on the alimony, anyway. And even if she was, her tax bracket would be much lower than stbx's, so it would be better to negotiate a deal where they split the difference - he pays a bit more but gets to claim the deduction.

 

[Ohiogal]

Actually, the context in which she used it is more along the lines of blackmail. "If you don't allow us to set up the alimony to be non-taxable to me, I'll tell the world that you're gay" (although she didn't put it that bluntly). I don't think there was anything in her post that suggested that the court would care.

The funny part is that she's probably wasting her time. Chances are that she wouldn't be paying much on the alimony, anyway. And even if she was, her tax bracket would be much lower than stbx's, so it would be better to negotiate a deal where they split the difference - he pays a bit more but gets to claim the deduction.

So in other words she is a repugnant individual. Who would commit a crime against her husband. Hopefully he will file a criminal complaint against her. Of course he still might have to pay alimony but there may be a discount due to her crime against him.

Repugnant and a homophobe. BLAH.