Child Support and Alimony PaymentsPublished:
Do you pay child support or alimony due to a divorce? Do you receive one or both of these benefits from an ex-spouse? If you answered ‘yes’ to either of these questions, it’s important to learn about the tax consequences and benefits that you may need to prepare for. Divorce advice for taxpayers can be obtained by reviewing the information in this article and hiring a tax professional.
If you receive child support payments from an ex, you are not required to report this as income on your tax return. Instead, this money is tax-free to you. This is tax advice that you should take advantage of. On the other hand, child support payments are not tax-deductible to the parent paying them.
Alimony payments are treated differently than child support. If you receive alimony due to a divorce, this income is considered taxable and must be reported on your income tax return. On the other hand, the person who is paying alimony may claim it as a tax deduction, as long as they meet the requirements set forth by the IRS.
Deducting alimony is good advice to follow, especially since it can add up over the years. The requirements for deducting alimony include:
- The alimony must be under a legal separation agreement or decree of divorce
- Alimony payments made on a voluntary basis do not qualify
- Alimony payments must be in the form of cash, check, or money order
However, restrictions do apply. One spouse cannot pay alimony to another if they are living under the same roof. If alimony is heavily concentrated in the first 2 years of payments, the IRS may suspect that the divorced couple is trying to classify a property settlement as alimony for the tax advantages, and force the payer to pay income tax on it. Make sure that alimony paid within the first 2 to 3 years is below the threshold of excess alimony ? this is valuable advice. These calculations can be worked out on your own or with a tax attorney.
With this divorce advice you can see that alimony payments provide more tax benefits (than child support payments) to both parties involved. It might be in the financial benefit of both payer and payee to have child support payments reclassified as alimony? especially if the payer is in a higher tax bracket and is willing to give the payee more in order to have an even larger tax deduction.
If you are going through a divorce, it is important to get as much tax advice as you can. This is particularly true if you will be receiving or paying child support and/or alimony. Solid advice from a professional will also help you take full advantage of any tax benefits that are available.