04 Mar Tax treatment of child support and alimony

Q. I’m divorced and have custody of my three kids. I receive alimony and child support. What’s taxable?
— Newly divorced

A. An individual’s tax situation may change dramatically after a divorce, and there are a few tax rules that may be advantageous to your personal situation.

Because you have custody of your three kids you are eligible to file as `head of household,’ said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown. This filing status is preferable to the `single’ filing status, he said.

Then there’s the alimony and child support.

Alimony is taxable to you as the recipient and it’s deductible by the payer — your ex — Kiely said.

“The alimony payment must be required under a divorce or separate maintenance agreement,” he said.

This is what the IRS says:

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 taxable to you, the recipient or deductible by the payer. If your decree of divorce or separate maintenance provides for alimony and child support, and your ex pays less than the total required, the payments apply first to child support (not taxable/deductible). Any remaining amount is considered alimony (taxable/deductible).

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.

Reporting Alimony

You must include in income the amount of alimony or separate maintenance you received. The alimony payer may deduct from income the amount of alimony or separate maintenance they paid. You do not have to itemize deductions to deduct your alimony payments. You must file Form 1040, U.S. Individual Income Tax Return, to claim the deduction. You cannot use Form 1040A, U.S. Individual Income Tax Return, Form 1040EZ, Income Tax Return for Single and Joint Filers with No Dependents, or Form 1040NR, U.S. Nonresident Alien Income Tax Return. The payer must provide the social security number of the spouse or former spouse receiving the payments. If the payer does not provide the recipient’s Social Security number, they may have to pay a $50 penalty and their deduction may be disallowed.

Speak to your tax preparer to make the correct decisions for your tax return.

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This story was first posted in March 2019.