Alimony is deductible by the payer and considered taxable income to the payee. It's crucial for both the payer and recipient to have alimony payments clearly defined in the divorce agreement. The payer of alimony doesn't have to itemize to claim it as a deduction. It's considered an "above the line" deduction. If you receive alimony, you may need to make estimated tax payments. Alimony is treated as earned income for purposes of eligibility to make an IRA contribution.

A payment to a spouse under a divorce or separation agreement executed after 1984 is treated as alimonyif it meets the following requirements:

• The payment is in cash.
• The instrument does not designate the payment as not alimony.
• The spouses don't file a joint return.
• The spouses are not members of the same household at the time the payments are made. This requirement applies only if the spouses are legally separated under a decree of divorce or separate maintenance.
• There is no liability to make any payment (in cash or property) after the death of the recipient spouse.
• The payment is not treated as child support.

  
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