Q: I receive alimony, which is obviously taxable to me. My ex-husband pays for the alimony from his sole source of income, non-taxable Social Security benefits. Therefore, he cannot deduct the alimony (since his income is already so low he has no tax liability). Does this mean my alimony isn't taxable?
Donna
A: Alimony is taxable when earned and deductible when paid. The two are not at all dependent upon each other...
I dealt with the general issue in more detail on my posting on divorce.
Alimony is always taxable to the recipient. The reasoning behind this is that alimony is always deductible to the payer. The only advantage the recipient has is that alimony is considered eligible income for purposes of IRA contributions. Thus, an alimony recipient could deduct up to $4000 to put in an IRA (if allowed), let $4000 grow tax-free in a Roth IRA (if allowed), or put $4000 tax-deferred into a non-deductible Traditional IRA.
Alimony is always deductible to the payer. The fact that a particular payer might not be able to deduct alimony because his income is so low it wouldn't matter is immaterial. This in no way diminishes the taxability of the alimony for the recipient.
Put another way, alimony in general is taxable, period. Alimony paid in general is deductible, period. Particulars are irrelevant. Suppose your employer had such low taxable income that your wages did him no good as a deduction. Are the wages still taxable to you? Of course they are. The same principle applies here.
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