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Is Child Support or Alimony Taxable?

by Steve Fritsch on March 31, 2013

Child Support TaxesWith the tax filing due date just around the corner there are always questions about whether child support or spousal support (“alimony”) is taxable or not.  This is important to know because there is nothing worse then getting a letter from the IRS or the State Franchise Tax Board stating that you owe them money because you received income that is taxable.  Also, if you are the payor of child support or spousal support it is important that you know these rules also so you do not take an incorrect deduction and have to pay more later.  Whether you are the payor or payee, you need to know whether the support you are paying or receiving is taxable.

Is Child Support Taxable?

Child support is neither taxable to the recipient (or the child) nor deductible by the payor.  IRC s.71(c).  In other words, if you are receiving child support you do not have to claim it as income on your tax return.  Likewise, if you are the payor of child support you cannot deduct the payments from your income.

Is Alimony Taxable?

Unless designated otherwise, spousal support is taxable to the recipient and deductible to the payor.  However, there are some requirements for it to be deductible.  First, the payment must be in cash or an equivalent such as check or money order.  Payment cannot be in the form of a service or property.  Second, the payment must be made pursuant to a support obligation arising under a “divorce or separation instrument”.  IRC s.71(b)(1)(A).  Third, the duration of the spousal support payment must stop at death of the supported spouse.  In other words, if the payor is obligated to make payments after the death of the supported party, said payments are not deductible.  Fourth, if the payments in the first “post-separation year” exceed the average of the second and third year payments by more than $15,000, the excess is recaptured in the third year.  This is done so a person is not taking a deduction for property division disguised as spousal support.

There are some other requirements regarding spousal support.  If there is a divorce or legal separation judgment and the former spouses are living in the same home, payments are not deductible.  Also, if the spouses file a joint return, spousal support payments are not deductible.  Therefore, the payor spouse will need to determine whether it is more beneficial to file a joint return or a separate return, taking the spousal support deduction.

Finally, the parties can agree that all or part of the spousal support payments may be treated as nontaxable and nondeductible.  This sometimes happens when parties reach a marital settlement agreement.  However, it must specifically state this in the judgment and cannot be inferred from ambiguous language in a court decision or separation agreement.

In sum, it is important to understand the tax consequences of child and spousal support so there are no surprises down the road and so the government does not come knocking for more money.   It may be a good decision to seek the advice of a tax specialist to decide the course of action you want to take.

DISCLAIMER:  The above article is for informational and educational use only and is not intended to be legal advice in any way.  If legal advice is needed, an attorney should be consulted.

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