Military Divorce Taxes – Military Retirement Pay
Claiming the Division of Military Retired Pay on Income Taxes
If finances in marriage life weren’t complicated enough, wait until you deal with military divorce taxes. Consider using popular financial software to help you stay organized, and consider the tax implications before you finalize your decree.
Sometimes in divorce negotiations, the term alimony will be introduced.
Sometimes, the service member thinks he or she will save on taxes if the division of military retired pay is referred to as alimony.
Calling Retirement Pay Alimony does not Save Taxes
Using the term alimony is incorrect and the concept of calling retired pay “alimony” to create tax-savings is also incorrect.
In some divorce cases, DFAS directly pays the former spouse’s division of pay. In such a case the service member and former military spouse will each receive an IRS Form 1099-R issued by DFAS. These Forms 1099-R should be reported as income received under Pension and Annuities on Federal Tax Form 1040 (line 16a for year 2012).
In other cases, such as our previously discussed Georgia military divorce, the service member makes payments directly to the former military spouse. In this case, only the service member receives a Form 1099-R and it is for the full amount (the service member’s and former spouse’s portion of retirement pay). As an equitable solution, the IRS permits these service members to claim the portion of military retired pay made to the former spouse as a deduction under alimony paid (line 31a on 2012 Form 1040). The spouse would in turn, claim alimony received on the Form 1040, line 11.
In both cases, the service member pays taxes ONLY on the portion of retirement pay received. There is no tax-savings by the service member directly paying the former spouse or referring to the retired pay division as alimony support.
The Dreaded IRS Mismatch Letter
When the division of pay is recorded incorrectly, there will be a mismatch with the IRS.
If the service member records the payment as alimony and the former spouse does not report it or records it as Pension income, the IRS will flag the tax return and ask for an explanation. It is important that the service member and former spouse are in sync when reporting military divorce taxes.
The Military Pension and Alimony
Using the term alimony in any discussion of military retired pay creates confusion.
As mentioned in prior alimony posts, it is important to understand that just because the IRS permits certain divorce cases to claim the division of pay as alimony, this does not make it alimony by definition.
The same hold’s true for the Pension and Annuities taxable income line on the 1040. Just because the military former spouse receives a 1099-R and claims it on this line, does not mean we should begin using the term pension to define military retired pay.
The division of military retired pay is a unique entity with rules and aspects that should keep it separate from being lumped in with the terms alimony and pension.
Be careful with the wording in your decree and be ready for the new challenges to keep your finances in order.
Have you ever received a notice from the IRS concerning military divorce tax issues? Tell us in the comments.
Everyone needs to STOP using the wrong term “Military Pension” – there is NO SUCH THING as a military pension ! ! ! ! It doesn’t make ANY DIFFERENCE if it’s been called that since it was created – the term is WRONG ! ! ! ! Military retired pay is NOT a “pension” ! ! ! ! CEASE AND DESIST – IMMEDIATELY ! ! ! ! !
Additionally, usually the retiree and former spouse are not on speaking terms or even tolerate each other – as long as the military retiree deducts direct payments to their former spouse and legally exempts income tax on that money sent to another person, it’s THAT PERSON’S responsibility to claim it as TAXABLE INCOME ! ! !
Great article. Thanks for the info,BTW, if anyone needs to fill out a form 1040, I found a blank form here (EDITED: Link removed because went to 2012 form). This site PDFfiller also has some tutorials on how to fill it out and a few related tax forms that you might find useful.
EDIT: 2014 Draft 1040
I find it funny that the comment of a scorned former spouse would rob their former spouse of their military retire pay. Those of us, that were married before, during and after a 20+ military career, who’s marriages ended for whatever reason, are also entitled. Who fed, educated, clothed, loved and nurtured those children? Worked outside the home as well as taking care of the home when our spouses were absent? Let us not forget that when you are married to military personnel, you are also military. If it wasn’t for us, where would you be?
Christine – If the former spouse is “also military”, then when the military retiree gets called back into active duty, then the former spouse better get their butt in gear and REPORT FOR ACTIVE DUTY AS WELL !!!!! (lol ! )
On the other side of REALITY – then answer this one – how do single military members survive WITHOUT a spouse ?
I totally agree with the comment above correcting the reference to Military Retirement Pay as a “pension.” It’s continued PAY for continued service (for the rest of our lives). Pensioners are never recalled to their active status in their “corporation” or employment organization. They’re not subject to the Uniform Code of Military Justice, and they’re not forced to divide their true pension by federal law upon divorce.
USFSPA is the perfect example of how we as a society have devolved into a liberal entitlement culture. Ex-spouses are perfectly willing to take money from whatever source they can get it – whether it’s moral or not!
The above comment – Feb 8, 2013 at 3:13 pm – was NOT made by “USFSPA Survivor”.
This happens when readers do not want to release their own name and/or copy names/phrases used by other readers. We’ve edited the submission to ‘another USFSPA survivor’. (We are looking for a better comment system that will not allow duplicate use of the same name.)
With all due respect, please STOP calling military retired PAY a “pension”. It is NOT termed a “pension” in any federal government wording – i.e. – the USFSPA doesn’t call it a pension; the IRS doesn’t call it a pension; the DoD doesn’t call it a pension; the US Tax Court doesn’t call it a pension. Military retired pay is N-O-T a “pension” ! ! !
Please reserach the issue and correctly educate yourself !
Just because it’s been called a “pension” for the past 60 years, doesn’t make it “right” !
I have to wonder if you read the post where it says: “Just because the military former spouse receives a 1099-R and claims it on this line, does not mean we should begin using the term pension to define military retired pay.”
That being said, you will occasionally see the term “military pension” used on this site because that is how readers, lawyers, and representatives are searching the Internet and we aim to reach and educate as many people as we can. (We have a post on the term military pension)
I don’t wonder at all why any “scorned former military spouse” and their “advisor” would want to keep using the term “military pension” – – – because it gives them an unconstitutional “cut” of a benefit that Congress created for the SOLE benefit of the career military member (Read the “McCarty” decision !) It also affords the devious opportunity for the former spouse’s “advisor” to keep their 401(k) and IRA’s fed by an unethical monthly “contingency fee” of what the “advisor” can rob from the retiree’s MILITARY RETIRED P-A-Y for their client ! ! !
PS – If you are going to “educate” the general public about the USFSPA – do it correctly, factually and BY THE LAW that created military retired pay and do NOT continue the vitriolic garbage that created the USFSPA ! ! !