Tax Treatment Of Child Support And Alimony

How Does Uncle Sam Treat Child Support For Tax Purposes?

Are child support payments considered taxable? What about alimony ? Going through a divorce can be complicated enough without the potential tax problems that certain payments can create. To make sure you aren’t surprised when April 15th rolls around, it’s a good idea to learn how the IRS treats payments of alimony and child support.

Alimony

Also know as spousal support , alimony is considered taxable to the receiving party and a tax-deduction to the paying party. For this reason, many couples opt for an alimony settlement, especially when the difference between the two incomes is substantial. The wealthier spouse will benefit from the tax deduction while the lower-income spouse can potentially receive a reasonable income boost with minimal tax consequences.

Child Support

Child support on the other hand, is not considered taxable income for the receiving parent nor is it tax deductible for the parent who pays. In fact, this amount is not reported anywhere on your tax return as it is considered tax-free income for the recipient and a normal non-deductible obligation of the paying party.

Things You Need To Know

In order to qualify for the alimony deduction, it must be paid separately from child support or any other type of payment. Likewise, in order to receive child support as tax free income, it must be paid separately from any other settlement amount and should be distinctly labeled as “child support”.

Payments can only qualify as alimony when the two parties are not members of the same household. This means two completely separate residences, not a main house and a guest house on the same lot. You must also file separate tax returns to qualify for alimony tax benefits.

In addition, only payments required through a legal agreement or court order can be considered alimony. Voluntary payments do not qualify. Alimony can also not continue after the receiving spouse has died.

Alimony must be paid in some form of cash. Property settlements and other exchanges are not acceptable.