When the retiree’s pay center does not make direct payments to a former spouse, the Retiree will need to make those payments directly. There will be federal tax withheld on the entire amount that the retiree receives but, the retiree can exclude from their income any amount paid pursuant to a court order or settlement agreement. The retiree will be able to deduct these payments from their gross income and the former spouse will be liable for taxes on the shares of the pension that they received. Likewise, the former spouse should include these payments when they report their gross income.
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Military Pension Support Payments
Military pension support payments are reported to the IRS and may entered, by the retiree, as a negative number. The amount of payments should be entered on IRS form 1040 at line 21 as “Other income,” at line 16a as pension and annuities, or at line 31a as alimony paid. The retiree will need to provide a note explaining that the negative number is a military pension support payments made directly to the former spouse pursuant to a court order or settlement agreement and should include a copy of the referenced document. The former spouse will need to complete their own IRS form 1040 and enter on line 16a the total amount received as military pension support payments.
To cover these contingencies, any court order or settlement document should include a clause stating that periodic payments made by the retiree directly to the former spouse, that are not done by garnishment through military retired pay center, will be included as the former spouse’s income under Sections 61 and 71 of the Internal Revenue Code, and these payments are likewise to be excluded from the retiree gross income.
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