How to Calculate Taxable Unallocated Child Support and Alimony
Your divorce or separation agreement may provide you with payments for child support or alimony, and in some cases, both. You must include all alimony payments in your gross income, but child support payments are never taxable. If the payments are unallocated in your divorce or separation agreement, meaning you are unable to determine how much is for alimony versus child support, the IRS provides a number of factors you must evaluate.
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Instructions
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Review the separation agreement for treatment of child support and alimony. Locate the section of your divorce decree or separation agreement that discusses your former spouse’s obligation to make regular payments of child support and alimony. If the document’s language isn’t clear, or provides alimony and child support as a single amount without allocation between the two, you must then analyze some of the terms to make the allocation.
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Notice which payments cease in the event your child's status changes. When the payments for child support and alimony are unallocated, the IRS treats the portion that’s contingent on an event that relates to your child as tax-free child support. For example, if your payment decreases from $1,000 per month to $300 per month when your child reaches the age of 18, the IRS treats $700 per month as child support. This means you must report $300 per month as taxable alimony on your tax return.
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See if any payments are contingent on occurrences in your own life. When the agreement includes language that reduces or eliminates the amount you will receive after a certain event in your own life, it can help you determine the amount to allocate as taxable alimony. For example, if your monthly payment decreases by $300 when you remarry, or after a fixed period of time when your child is under the age of 18, you can assume that the $300 relates to alimony.
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Calculate the portion of your annual payments to include in gross income. Once you ascertain the correct allocation of your child support and alimony payments, you must report all payments you allocate to alimony on your tax return. You report the gross amount on the “alimony received” line in the income section of your 1040. However, regardless of the amount of child support you receive, the IRS never requires you to include it on a tax return.
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Tips & Warnings
If you are legally separated or divorced, but continue to share the same household with your former spouse, the IRS doesn’t treat any payment you receive as alimony, which means you don’t include it on a tax return and your former spouse doesn’t deduct it. However, if you are not legally separated or divorced, but a written separation agreement requires your former spouse to pay alimony, you must always include the payments on your tax return, regardless of whether you share the same household or not.
