Does Alimony and Child Support Count as Income?
The tax treatment of divorce payments depends on their classification and your agreement date. Learn how these factors define your financial responsibilities.
Alimony, or spousal support, is a payment one spouse makes to the other for financial assistance during or after a divorce. Child support consists of payments made to cover the costs of raising a child. The federal tax treatment for these two types of payments is distinctly different, which affects both the payer and the recipient.
Tax Implications of Alimony Payments
The tax rules for alimony are determined by the execution date of your divorce or separation agreement. A change in federal law, the Tax Cuts and Jobs Act (TCJA), altered the tax treatment of these payments, making the date of the agreement the primary factor.
For divorce or separation agreements executed on or before December 31, 2018, the previous rules still apply. Under these regulations, alimony payments are taxable income to the person receiving them. Conversely, the spouse making the payments can deduct the amount from their income. This structure often allowed for a net tax savings, as the paying spouse was frequently in a higher tax bracket than the recipient.
To account for these payments, the recipient must report the alimony as income on Schedule 1 of their Form 1040. The paying spouse also uses Schedule 1 to claim the deduction. The payer must include the recipient’s Social Security Number on their tax return; failure to do so can result in the disallowance of the deduction and potential penalties.
A different set of rules applies to agreements executed after December 31, 2018. For these agreements, alimony payments are not tax-deductible for the paying spouse and are not considered taxable income for the receiving spouse. This change means the payments are treated as a neutral transfer for federal tax purposes.
Parties with agreements from 2018 or earlier who decide to modify their arrangement should be aware of the tax implications. If such an agreement is formally modified, the new tax rules can be applied if the modification document explicitly states that the new tax treatment under the TCJA will apply to the revised payments.
Tax Rules for Child Support Payments
The tax treatment of child support has not been subject to the same legislative changes as alimony. Child support payments are never tax-deductible for the parent who pays them, and they are never considered taxable income for the parent who receives them. This rule applies universally, regardless of when a divorce or separation agreement was finalized.
The Internal Revenue Service (IRS) views these payments as part of a parent’s personal obligation to financially support their child. The funds are considered a transfer for the child’s welfare, covering expenses like housing and education, rather than income for the custodial parent. For this reason, child support is not reported on either parent’s federal income tax return.
IRS Criteria for Classifying Payments
For a payment to be treated as alimony for tax purposes under pre-2019 agreements, the IRS has a specific set of criteria that must be met, as misclassifying payments can lead to adjustments and penalties. The payment must be made in cash, check, or money order and be received by or on behalf of a spouse under a divorce or separation instrument.
The payment must also meet several other conditions:
- The legal instrument cannot designate the payment as something other than alimony.
- The spouses cannot be members of the same household when the payments are made.
- There is no liability to make any payment for any period after the death of the recipient spouse.
These tests ensure that the payments are genuinely for spousal support and not a disguised property settlement or child support.
A factor in this classification is the “child contingency” rule. A payment that might otherwise qualify as alimony will be reclassified as child support if its amount is tied to events related to a child. If a payment is scheduled to be reduced or terminated upon a child reaching a certain age, leaving school, or marrying, the IRS will treat that portion of the payment as child support from the beginning.
For example, if a divorce decree requires a monthly payment of $2,000 but specifies it will decrease to $1,200 on the child’s 18th birthday, the IRS considers $800 of each payment to be child support. Under a pre-2019 agreement, only $1,200 per month would be deductible by the payer and taxable to the recipient as alimony. The remaining $800 is treated as non-deductible, non-taxable child support.