How Are Child Support and Spousal Support Payments Taxed?

 Posted on May 18, 2021 in Taxation Law

Couples who have decided to end their marriage will need to address a wide variety of financial issues. During this process, spouses will not only want to make financially advantageous decisions, but they will need to consider how these decisions will affect their taxes. One divorce-related tax issue that may arise involves determining how taxes will apply to child support or spousal support payments made by one party to the other.

Taxes on Support Payments

In the past, child support and spousal support were taxed differently. The person who paid spousal support was able to deduct these payments from their taxable income, and the person who received spousal support was required to report these payments as part of their income and pay taxes on the amount received. Child support was handled differently, with the payor not being allowed to deduct payments, and the payee not reporting payments as income. 

The tax laws changed a few years ago, and for divorces that were completed on January 1, 2019 or later, spousal support and child support are taxed the same. Payors of support cannot deduct payments, and payees are not taxed on the payments they receive. This may make the consideration of tax-related issues during divorce more straightforward. However, those who are currently paying spousal support from a divorce that was finalized before 2019 will still be able to deduct these payments, and they will want to be sure to understand how the decisions they make will affect their taxes going forward.

In some cases, spousal support and child support may be paid while a couple is separated but has not yet completed their divorce. Couples will want to be sure they are addressing the taxes on these payments correctly. The IRS notes that payments will only be considered spousal support if the couple does not file a joint tax return, the spouses are not living in the same household, payments are made in cash or using methods such as a check or money order, and payments are not required to continue after the death of the recipient. Spousal support must be paid as part of a legal separation agreement or a temporary court order during a couple’s divorce, and it must be separate from child support payments or marital property settlements.

Contact Our San Jose, CA Tax Law Attorney

If tax issues are not considered properly during your divorce, you may be subject to a tax audit in which the IRS may seek to recapture taxes that apply to spousal support payments. During the divorce process, John D. Teter Law Offices can work with you to make sure you avoid potential tax liabilities and make decisions that protect your financial interests. Schedule a consultation with our San Jose tax lawyer by calling 408-866-1810.

Sources:

https://www.irs.gov/taxtopics/tc452

https://www.investopedia.com/articles/tax/10/spousal-support-taxation.asp