It is important to know how the IRS treats spousal maintenance and child support to ensure that both are considered correctly on your income tax return.
Generally speaking, spousal maintenance is tax deductible to the payor, but the payee (recipient) must pay taxes on it. Child support is not tax deductible to the payor, and the payee does not have to pay income tax on it.
While it is easy to determine what is characterized as “child support,” it can be a bit more complicated to determine what qualifying “alimony” is.
Alimony, in order to be tax deductible, must meet the following criteria:
- Payment is made pursuant to a separation agreement, or divorce decree, and payment must be made, or received, on behalf of or by the spouse.
- Payment can be made in cash, or as a payroll deduction.
- The parties must not live together.
- Payment must end upon the death of the payee, when he or she remarries, or after the allotted time period to receive support has passed.
If these criteria are met, then spousal maintenance can be deducted on a tax return.
There is an issue that the IRS looks for, however, called “recapture.” That concept exists in order to prevent parties from “front loading” spousal maintenance payments – and passing them off as property division.
Recapture is only an issue if the total alimony that the spouse is to pay totals over $15,000. It is evaluated by the IRS during the first three years following divorce. If alimony payments decrease by more than $15,000 in that three-year period, then the IRS can swoop in and recapture the deduction.
There are times when the payee may not want to be taxed on the alimony payments that they receive, so the payor then agrees to not take the deduction on the alimony that they have paid. In this case, there can be an explicit agreement between the parties that can prevent the payor from taking the deduction, and the payee from paying taxes on it. The IRS views this as the tax due being paid between the parties, so such an agreement is allowed.