Obviously not every case has alimony and child support issues, but those divorce clients that do should be aware of some basic income tax issues related to support.
Issue #2. CHILD SUPPORT V. ALIMONY:
Child Support is the amount of money paid by the non-custodial parent to the custodial parent for the support of the children. In Massachusetts, Child Support is calculated using a formula called the Massachusetts Child Support Guidelines. Child Support is NOT taxable income to the recipient, and is NOT tax deductible to the payor.
Alimony, also called spousal support, is paid by the wage-earning spouse (the spouse who has traditionally earned the majority of the income during the marriage) to the non-wage-earning spouse to allow the non-wage-earning spouse to continue to live in the lifestyle to which he or she has become accustomed during the marriage assuming their is enough income to do so. Alimony is income to the recipient and should be included as taxable income on the Recipients state and federal income tax returns. Alimony is tax deductible to the Payor, and sometimes even payments made on behalf of an ex-spouse, such as health insurance payments may also be tax deductible. You should consult with an attorney to discuss the specific facts of your case if you think you might be making other payments which could be tax deductible as well.
What happens when a case warrants both alimony and child support?
Just as there is no formula for calculating alimony in Massachusetts, there is also no bright-line rule for breaking down how much of an order should be alimony and how much should be child support when a case warrants both. The interplay of these two figures can be very complicated because the tax effect to both the payor and the recipient is very different depending on how a support order is broken down. For more information about the possible ways of dividing support orders review our blog post: How can I calculate Child Support AND Alimony?
Click here to read Divorce and Taxes: Issue #3. Child Dependency Exemptions.