As part of my divorce planning practice, I often work with clients to help them chart out their cash flows and projected tax issues to help reduce surprises. Sometimes folks can be confused about what is taxable income.
In one case, a woman asked if the monthly benefit she received from her ex-spouse’s military pension was taxable since it was considered “property” in the divorce decree in the state in which she lived.
For reference, alimony received is considered taxable income. But this is clearly not alimony and wasn’t listed as alimony in her divorce decree. Nonetheless, the monthly income she is receiving from her ex-spouse’s pension may very well be taxable.
Military retirement pay based on age or length of service is considered taxable income for Federal income taxes. However, military disability retirement pay and veterans’ benefits, including service-connected disability pension payments, may be partially or fully excluded from taxable income based on a variety of tests.
It sounds to me like this is retirement pay (and not part of any disability) so this will be added to her total adjusted gross income.
Whether or not it becomes taxable will depend on how much her total income is and home much of this income (from this and all other sources) may be offset by deductions (itemized or standard) and exemptions.
If you’re receiving any military retirement income you will likely receive a Form 1099-R from the US Office of Personnel Management each year detailing what was received and what portion is ‘taxable’.
Taxpayers may want to plan ahead and calculate whether they may have any tax owed and how much, if any, quarterly estimated tax payments that they may want or need to make. Speak with a qualified tax professional or tax adviser to help figure out this detail. Call us and we’ll be happy to help.