Wednesday, March 18, 2015

What are the tax implications of child support and alimony?

What are the tax implications of child support and alimony?

According to the IRS, child support is not included in the income by the recipient of child support, nor is it a deduction for the payor of the child support.  On the other hand, alimony is included in the income of the recipient and is a deduction for the payor of alimony.

Child support is considered an expense of both parties.  There are specific tax benefits of having a child, but the normal necessary expenses of having a child are not deductible whether or not the couple is married, living together, or living apart.  Therefore, when a married couple splits, child support payments would represent these normal necessary expenses of the child and would not become deductible by the payor parent and would not be included in the income of the recipient parent.  Because the support payments are not being used to support the recipient but to support the child, it is not proper to include the support payments in the recipient parent’s income.  The income has already been taxed as income of the payor parent and taxing it as income of the recipient parent would be a form of double taxation.

divorceAdditionally, only one of the parents will be eligible to claim the child as a dependent on their tax return and the parent that claims the child as a dependent is the only parent that is eligible to receive the benefit of any of the available tax credits related to having children, if they qualify.

Alimony is a form of income replacement for the recipient.  The recipient of alimony no longer has the support of their spouse.  Because it is included in the recipient’s income and taxable to the recipient, it is rightfully deducted from the payor’s income to avoid double taxation of the same income.

The tax implications of divorce can be complex and confusing so it is always best to contact a tax professional to address your specific situation.

Attorney Angel Oliver / McGrath and Spielberger, PLLC assists clients with all sorts of tax matters, both federal and state (including but not limited to North Carolina and South Carolina). Click here to contact Ms. Oliver about your tax matter.