Paying Alimony as a Means of Lowering Your Withholding Tax
It seems that the IRS is right there with you in every new direction your life takes you. There will be tax implications when you get married. How much more when you get divorced? When you have a baby, get a new job, buy a house, or purchase an energy efficient car – all of these can affect your taxes. This write-up will examine how alimony can affect your withholding tax, as well as how you can get IRS help with any inquiries that you may have. There are two different methods of paying for federal income taxes. First is through the estimated tax. Mostly, people who work for themselves use this. The IRS said that, “estimated tax is used to pay not only income tax, but self-employment tax and alternative minimum tax as well.” Most employees pay their federal income taxes by withholding. Here, your employer withholds income tax from your paycheck (this is why a big chunk of your pay seems to vanish when you get your check!). From whatever type of income your tax is withheld, it is always reflected under your name. Two factors determine the amount that is withheld from your pay: your income and the information reflected on 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). You can make use of the IRS’ Withholding Calculator for less tedious calculation 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 do this? You can simply fill out a new W-4 and give it to your employer to avail of adjustments in your withholding taxes. Alimony payments are taxable, thus tax reduction can’t be a result of such form of income. If are receiving these, it is a bright idea to fill out a new W-4 to reflect an increase in your income. If you do this, you do not end up owing a bunch of taxes at the end of the year. On the contrary, an expense for paying alimony is considered tax deductible. For the alimony to qualify as a tax deduction, it has to be paid 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 always present. Gladly take it in by updating your personal records so your taxes can also be adjusted accordingly.
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