It is important to understand the difference between alimony and child support because both have different tax requirements that must be followed correctly. Major problems arise when a taxpayer who sends child support reports that the payments were in the form of alimony. Both need to be distinguished correctly on a tax return or problems can arise.
It is state law that requires parents to provide support for their children. This type of support is child support and is generally not tax deductible. It does not matter whether the support is being paid to various suppliers for goods and services when a child resides with the taxpayer, or if the payment is made to the custodial parent for this purpose.
Both of these are considered child support and both are not tax deductible. Also, the money that is received by the custodial parent does not constitute taxable income.
Payments that are made to support an ex-spouse are considered alimony and are deductible by the payor spouse and includible in the income of the recipient spouse. It is very important that both of the spouses identify the alimony on their tax return. If one does and the other does not, there will be problems when they both file their return.
There are generally five requirements for a payment to be considered alimony, these are:
1. The payment must be in cash. It cannot be in services, property, or a debt instrument.
2. The payment must be made to, or on behalf of a spouse, pursuant a divorce or separation instrument.
3. The divorce or separation instrument cannot specify that the payments are not alimony. If the instrument does specify that the payments are not alimony, the recipient must attach a copy of this instrument on their tax return for each year in which the designation applies.
4. The spouses must not share a household when the payments are made.
5. The divorce or separation agreement must provide for the termination of alimony payments upon the death of the recipient spouse.
These five rules are considered to be concrete and it is important to follow them when paying alimony. It is important to remember that there are two different returns being filed and if one does not match the other, the IRS will be able to see that something is not right.