Health Insurance Payments as Maintenance (k/n/a/ Alimony)

The United States Tax Court related that payments made by a spouse to a former spouse can be treated as maintenance (or alimony) if all of the following conditions are met: (1) payments are made in cash (and not property transfers); (2) payments are made pursuant to a divorce decree or separation agreement; (3) the decree or separation agreement does not designate the payment as non-deductible by the payor-spouse and nontaxable to the recipient/payee-spouse; (4) parties live apart; and, (5) there is no requirement to make the payments after the death of the recipient/payee-spouse.

If these five conditions are met, the payments are deductible by the payor-spouse and the payments are taxable to the payee-spouse.

In the case the divorce court ordered the husband to pay $2,414 per month and $1400.00 to pay the wife’s health insurance premiums. The divorce decree specifically stated that the payment of $1,400.00 to pay for the wife’s health insurance premiums “is not in the nature of spousal support and not taxable to the wife nor deductible to the husband for income purposes.”

The IRS deemed the husband’s tax deduction for the health insurance payments of $1,400.00 per month. The tax court stated that the health insurance payments are not alimony and not deductible under the Internal Revenue Code for the following reasons:

1. Payments are deductible as alimony only if all of the four requirements (discussed above) in Sec. 71 (b)(1) are met; 
2.  Parties may agree that the payments are or are not maintenance, but the parties do not have complete authority to define such payments in a state court matter;
3. A state court may simultaneously label a payment “in the nature of spousal support” in a divorce decree or separation to prevent the discharge of the payment in a bankruptcy proceeding, and also designate the same payment as “not in the nature of spousal support” for income tax purposes.

For any questions or concerns, please feel free to contact the law office of Arlington Heights attorney Robert S. Thomas. 

LAW OFFICE OF ROBERT S THOMAS

1655 N Arlington Heights Rd, Suite 300West

Arlington Heights IL 60004

847-392-5893 phone
info@attorneyrobertthomas.com

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