Ed note: Are child support payments considered income? Do I get a deduction for paying alimony? While we often think of the emotional issues involved in divorce, there are a lot of financial ones too. And tax time has a way of bringing the financial concerns to the surface. Leer en español.
If you are in or have been through the process of a divorce, you already know there are a lot of details involved. There is a lot happening and a lot you may be learning for the first time. When going through all the moving parts, make sure you understand the tax impacts of child support, property settlement and/or alimony payments on your tax return.
You’ll need to distinguish between alimony, child support and property settlement payments in order to determine what effect they may have on your taxes.
Payments are alimony, sometimes referred to as spousal maintenance or spousal support, when all of the following is met:
- The payments are ordered by a divorce or separation instrument
- You and your former spouse no longer file a joint return
- The payments are made in cash, checks, or money orders, and are received by the former spouse or on the former spouse’s behalf
- The payments are not described as being payments other than alimony in the decree
- If legally separated, you and your former spouse no longer live in the same household when the payment is made
- There is no liability to make the payment (in cash or property) after the death of the recipient spouse or former spouse, and
- The payment is not treated as a property settlement or child support
A taxpayer paying alimony can deduct the amount paid and the recipient will include that amount in their income.
Child support payments, on the other hand, should be specifically labeled child support in the instrument. If it is unclear, a payment will be treated as child support when the payment is reduced at the occurrence of a contingency relating to the child or at a time clearly associated with that contingency. For example, payments that end or are reduced when the child turns 18 or moves out of the home would be treated as child support.
Payments are not deductible by the payor and are not included in the income of the recipient. If you are the recipient, when you calculate your gross income to see if you are required to file a tax return, do not include child support payments received.
A property settlement is the division of marital property between spouses due to a divorce that is neither alimony nor child support, and is incident to divorce.
A property transfer is incident to divorce if:
- The transfer occurs within 1 year after the date on which the marriage ceases, or
- The transfer is “related to the cessation of the marriage.”
A transfer is related to the cessation of marriage if:
- The transfer is pursuant to a divorce or separation instrument, and
- The transfer occurs not more than 6 years after the marriage ceases.
There is generally no gain or loss recognized on transfers of property in a property settlement, although some transfers may require other reporting forms and impact your return in other ways. Table 5 of IRS Publication 504 outlines many of these special rules.
What else you need to know:
- If you should receive alimony and child support, and don’t receive as much as the agreement requires, payments are first applied to child support and then to alimony.
- If you and your former spouse owned a home together, there is special tax treatment for payment of those expenses. Table 4 of IRS Publication 504 is a great tool to help you decide how to deal with this situation.
- Voluntary payments to a former spouse cannot qualify as alimony, even if that is the right thing to do in your situation. Therefore, there is no deduction for voluntary payments.
- If you pay child support and get behind in your payments, the Bureau of Fiscal Services may start taking your refund and applying it towards the past-due child support.
When a divorce instrument requires that you make payments to a third party on behalf of your former spouse, they are generally considered alimony. These payments are treated as having been received by your former spouse and then paid to that third party. Examples are medical bills, housing costs, taxes or utilities.
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