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Question for the Money Doctors

Question submitted on May 12, 2013.

Question

Hello...I am being paid by my ex-spouse for my living expenses via maintenance. He pays me using the payroll company that his business uses. I asked him to withhold my taxes since he pays me through his business payroll department. He said that his accountant said that since I am NOT employed by him this is not possible. He currently pays for some of my health insurance through his company, also. I am asking if it is acceptable by the IRS for the ex-spouse to deduct my withholding taxes for me from the maintenance payments.

Answer

Pursuant to IRS Publication 504 and 505, there is no withholding requirement on alimony or maintenance payments. The recipient should either adjust their W-4 to accommodate the additional taxable income or make estimated tax payments.

Below are excerpts from Publications 504 and 505.

If you were recently divorced and are paying or receiving alimony under a divorce decree or agreement, you need to consider the tax implication for your federal income tax return.

Here are the general guidelines:

Alimony payments received from your spouse or former spouse are taxable to you in the year you receive them. Because no taxes are withheld from alimony payments, you may need to make estimated tax payments or increase the amount withheld from your paycheck.

Alimony payments you make under a divorce or separation instrument are deductible if certain requirements are met. Any payments not required by such a decree or agreement do not qualify as deductible alimony payments.

If you paid or received alimony you must use Form 1040. You cannot use Form 1040A or Form 1040EZ. If you received alimony, you must give the person who paid the alimony your social security number or you may have to pay a $50 penalty.

Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.


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