Paying Alimony as a Way of Lowering Your Withholding Tax

It appears that the IRS makes itself known in everything you do in your life. Getting married, getting divorced, delivering a baby, transferring to a new job, buying a home and even purchasing an energy efficient car have tax implications. In this article, you will learn how alimony can cause your withholding tax to decrease and how you can get IRS assistance on this area.

Estimated tax and Withholding tax are the ways of paying for federal income taxes. Estimated tax is commonly used by people who work for themselves. To quote the IRS: “estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well.” Employees, on the contrary, pay their taxes by withholding, meaning their employers withhold income tax from their monthly checks. Whether taxes are taken from your job or other types of income like pensions, gambling winnings, bonuses and commission, they will always be filed under your name.

Your salary and specific data in your W-4 (including details on whether you are withholding at the single rate or the lower married rate, how many withholding allowances you can claim, and whether you want any additional income withheld) influence the amount that will be withheld from your pay. You can use the IRS’ Withholding Calculator for easier computation of your withholdings.

As mentioned before, a number of instances can cause your withholdings to change, and alimony adjustment is among these. How should you go about this method? In general, if you wish to change the amount of income withheld, you have to fill out a new W-4 and forward it to your employer.

Alimony payments are categorized as taxable income. Hence, you should fill out a new W-4 if you are receiving these so this will be reflected as an increase in your income. Doing otherwise might leave you with more taxes to settle at the end of the year.

On the other hand, if you are the one paying for the alimony, then this expense is tax deductible. For the alimony to qualify as a tax deduction, it has to be given in cash, through a check or through money order. Direct payments to certain bills of an ex-spouse do not qualify as alimony. Again, you simply need to fill out a new W-4 to reflect your expenses on paying for alimony.

Change is unavoidable. When they do occur, be sure to update your personal records so your taxes can be adjusted accordingly.