Child support payments represent the parent’s obligation to assist in the support of his or her children. Thus, such payments are not deductible to the parent making the payment and do not result in gross income for the recipient. On the other hand, alimony payments are fully deductible to the spouse making such payments and result in gross income for the recipient. Therefore, the distinction between alimony payments and child support payments is significant. Misclassifying alimony or support payments can have drastic tax consequences.
What are Alimony Requirements in Divorce?
There are several requirements that must be met before a payment is treated as alimony for tax purposes. These requirements apply regardless of the couple’s characterization of the payment. One such requirement is that the payment must not be child support.
What Payment is Considered Alimony?
A payment will be considered child support for tax purposes if any of the following tests are met:
- The payment is designated as child support in the divorce or separation agreement.
- The payment is reduced on the happening of a contingency related to the child, such as attaining a specific age, leaving school, or leaving the spouse’s household.
- The payment is reduced at a time that can be clearly associated with the happening of a contingency related to the child. (For example, payments that are reduced within six months of a child turning age 18, 21, or the local age of majority, are presumably child support.)
In addition, to qualify as alimony, all of the following factors must be in place:
- The payment must be in cash;
- The payment must be received by or on behalf of a spouse under a divorce or separation instrument;
- The instrument does not designate the payment as not deductible by the payor and not includible in the payee’s gross income;
- The parties are not members of the same household if legally separated or divorced; and
- There is no liability to make payments after the death of the payee.
What Factors does IRS Consider in Alimony?
In all instances, the substance of the payment type controls over its form, regardless of the characterization by the divorcing couple.