Tax Implications of Alimony and Child Support

It’s that time of year when filing income taxes in on everyone’s minds. If you are in the process of organizing your tax-related paperwork, spending a few extra minutes, taking stock in your allowable deductions is an equally important exercise.

If you began making alimony payments in the last year or are one of the many adults in the State of Rhode Island paying alimony than it is important for you to know that an award of alimony has Federal Income Tax consequences. Alimony is taxable to the spouse who receives the alimony and is deductible by the spouse who pays alimony.

Alimony is designed to provide support for a spouse for a reasonable length of time to enable the recipient to become financially independent and self-sufficient. In order to qualify as alimony, alimony must terminate on the death or remarriage of the recipient. On the flip side of the tax coin, payments of alimony are taxable to the recipient.

This is very different from payment of child support. Payment of child support is a non-taxable event. The parent who pays child support is not entitled to a deduction for payment and the receiving spouse does not include the payment as income. Therefore it is tax free money to the parent who receives the child support. 26 U.S.C.A. 71.

To understand further, what payments are considered alimony or child support, the IRS website offers the following insights:

Amounts paid under divorce or separate maintenance decrees or written separation agreements entered into between you and your spouse or former spouse are considered alimony for federal tax purposes if:

• You and your spouse or former spouse do not file a joint return with each other
• You pay in cash (including checks or money orders)
• The payment is received by (or on behalf of) your spouse or former spouse
• The divorce or separate maintenance decree or written separation agreement does not say the payment is not alimony
• If legally separated under a decree of divorce or separate maintenance, you and your former spouse are not members of the same household when you make the payment
• You have no liability to make the payment (in cash or property) after the death of your spouse or former spouse, and
• Your payment is not treated as child support or a property settlement

Payments Not Alimony

Not all payments under a divorce or separation instrument are alimony. Alimony does not include:

• Child support
• Noncash property settlements
• Payments that are your spouse’s part of community property income
• Payments to keep up the payer’s property, or
• Use of the payer’s property

Child support is never deductible. If your decree of divorce or separate maintenance provides for alimony and child support, and you pay less than the total required, the payments apply first to child support. Any remaining amount is considered alimony.

Noncash property settlements, whether in a lump sum or installments, do not qualify as alimony.

Voluntary payments (that is, payments not required by a divorce decree or separation instrument) do not qualify as alimony.

To discuss your personal tax situation, please contact an experienced accountant who is familiar with Rhode Island state laws. If you have considered divorce and would like to discuss the possibility of alimony payments made to you or your current spouse, contact an experienced Rhode Island divorce lawyer.