How to Determine When Alimony or Child Support is Taxable

Alimony received is taxable income. The alimony you pay is deductible from your taxable income. Child support has no tax relevance. Knowing the difference is critical.

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

• Stress Management Counseling
• File Cabinets
• Attorney Referral Services
• Copying Services
• Mortgage Payment Plans
• File Folders
• Personal Organizers

1. Determine if payments are voluntary or required. Only required payments are alimony.
2. Verify that payments are set up by an official written agreement or court order. Only such officially determined payments are alimony.
3. Determine if payments are made by some form of money. Alimony must be paid in money. Property settlements, goods or services are not alimony. (Divorces before 1985 can be different, however.)
4. Determine if payments are going to a bank or mortgage company to pay for a home you and your spouse jointly own. Such payments are alimony only if the payer makes all the mortgage payments, and then only half of the payments count as alimony.
5. Determine if payments are for real estate taxes or insurance on a home you both own jointly. Only if you are tenants in common and the payer made all the payments can half of the payments be alimony.
6. See if your agreement or order states the payments are not alimony. Even if they seem to be alimony, if it says they are not, they are not.
7. Find out if the payer is behind on child support payments. Payments are not considered alimony if back child support is due.
8. Find out if payments are in any way linked to the ages or circumstances of children. If payments are to stop or decrease when your child reaches a certain age or goes to college, they are child support and not alimony.
9. Determine if payments are compensation of any kind. If they are for use of property, time caring for a child or in return for some service undertaken, the payments are not alimony.

Tips & Warnings

• Although alimony is considered to be "earned income" for the purpose of IRA contributions, alimony is not considered earned income when calculating the earned income credit.
• If you jointly own a home and the recipient of alimony doesn't itemize deductions while the payer of alimony does itemize deductions, consider having the payer of alimony lower alimony payments and increase the mortgage payments. This will result in lower taxes for the recipient, but the payer will receive a deduction for mortgage interest payments. But don't do this if the alimony recipient is filing Married Filing Separately.
• If the alimony payer claims a deduction, but the recipient does not declare alimony as income, the IRS will recognize a discrepancy very quickly. Keep good records to defend your actions.
• Alimony payments designed to continue after the death of the recipient are not really alimony. They are child support from the very beginning.