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Taxable Income, Child Support and Alimony

Taxable income is on the mind of every United States citizen now that tax season is in full swing. Some people file their income taxes early, but there are many that waited until the extended deadline this year to file their taxes because they’ll either have to pay or won’t receive much of a return.

If you receive child support, you know that the amount granted is “income-driven,” and many parents assume that they have to add their child support payments as taxable income on their taxes.

Payee Does Not Claim Taxable Income

The Internal Revenue Service does not consider child support as taxable income, and this means that as the payee, you do not have to add child support under your income. You also cannot consider child support when determining Earned Income Credit.

Payer Cannot File Tax Deductions for Child Support

As the payer, you’re also not able to deduct your child support payments from your taxable income. If you are the custodial parent, or the parent that the child spends more than half of their time with, you may be able to claim the child as a dependent.

Alimony payments may also be received, and this would change your tax situation.

Alimony and Tax Considerations

Alimony payments are granted in some divorces, and new tax laws have changed the way that these payments are handled. For decades, the payer was able to deduct alimony for their federal income taxes.

Changes for payments under agreements made after 2018 will change this.

Under the new rules, alimony payments cannot be deducted. Recipients will not claim alimony as taxable income, so the ex-spouse will benefit most from the new tax laws. Payees will have to pay substantially more on their taxes under the new law.

When negotiating a divorce agreement, parties will need to consider these tax changes. The additional tax burden of the payer and windfall for the payee will need to be taken into consideration. Tax experts recommend that all parties engaged in divorce proceedings consider the changes and possibly seek lower alimony payments based on the elimination of the tax deduction by the payer.

But any divorce agreement that is before 2019 will have nothing changed. Under the new tax changes, those that had agreements in place before 2019 will be able to continue with their deductions. This will allow for agreements, which are often considered deductions, to remain in place without any changes made in the process.