Deanne Katz, Esq.
Divorce decrees that include child support and alimony, like most do, can make your finances more complicated, especially around tax time.
Not only do you have to account for your income to the IRS, you also want to avoid paying more in taxes than you need to. What you really need is a primer on how your child support and alimony payments will affect your tax obligation.
The good news is both of those will lessen your tax burden. But they each have a different tax status according to the IRS.
Child support is tax-free
Ahh, those magic words: tax-free. Every dollar you pay for court-ordered child support is exempt from federal income tax. The catch is, it only applies if the money is clearly labeled as child support.
In some divorce decrees, alimony and child support are lumped into one category and the non-custodial parent simply pays “family support.” It may help to separate out the money for child support, both in your payments and in court papers.
The benefit of making a separate category for child support is that no one pays tax on it. Neither the parent nor the child has to pay income tax on child support dollars.
Tax-free means when you file your taxes, you will get credit for any income tax you prepaid on money that goes to child support. What you can’t do is claim that money as a deduction from your total income. It’s an important difference when it comes time to file.
Alimony is tax-deductible for the person paying
Legally, when you pay alimony you transfer some of your income to your ex. That means you’re relieved of that tax burden and now your ex is responsible for paying taxes on it.
It also means, from the government’s viewpoint, that your total income is lessened. And that means a tax-deduction. Cha-ching!
Any amount paid for alimony is tax deductible for the person who pays, and must be declared as income by the person who receives the money.
What this means for you
Start by arming yourself with information on taxes and the difference between tax-free and tax deductible. There are many free online resources, and FindLaw’s Tax Center is a great place to start.
Hopefully your paperwork is already clear and your “tax guy” knows how to maximize your tax benefits. But if not, now is the time to contact a Chicago family law attorney for professional help before your taxes are due.
- Alimony Guidelines: What Records to Keep Regarding Your Alimony (FindLaw)
- Get expert advice on your own chid support and alimony questions (FindLaw Answers)
- Can I Deduct Child Support on My Taxes? (FindLaw’s Law and Daily Life)