Alimony and Child Support Tax Implications in Orange County

Learn the Tax Implications of Alimony and Child Support Payments

Everything in your life changes after a divorce - and the way that you will handle your taxes is no exception. This is particularly true when alimony or spousal support is involved. Whether you are receiving alimony or paying it to an ex-spouse, there are tax implications.Divorce tax issues must be considered during the divorce process, so that no financial surprises come up following completion of a divorce.

Tax Treatment of Spousal Support Payments

For tax purposes, alimony or spousal support payments are considered income. This means all alimony received in a fiscal year must be disclosed on a tax return. Quarterly tax payments can be set up and paid to the IRS to avoid a large tax bill in April. If taxes are not paid on the alimony an IRS audit might find back taxes owed and assess penalties and interest on any unpaid taxes.

For tax purposes, child support payments are treated differently than alimony. Child support payments are not considered income. Thus no tax is owed on any child support received.

In some cases, instead of monthly alimony payments, a lump sum settlement may be a part of the divorce agreement. Depending on the way the payment is structured, a large amount of taxes may be owed in one year. An Orange County divorce attorney can spot tax issues and advise you on tax consequences of a proposed settlement.

Understanding Deductions for Spousal Support Payments

For those who must pay alimony of spousal support to an ex-spouse, these payments are tax deductible. The following is required to claim the deduction:

• An ex-spouse's social security number is needed to claim the deduction. If this information is not included, the IRS may not allow the deduction. A fine of $50 may also be assessed for failure to include the social security number.
• To qualify for an alimony payments deduction, the ex-spouse must file a separate tax return and live in a different household

Payments made for child support cannot be deducted from your taxes.

Tax questions should be addressed prior to any settlement. However, if taxation questions come up following a divorce, contact a knowledgeable family law attorney well versed in the taxation implications of alimony, lump sum monetary settlements and property settlements.