Divorce can often be complicated and stressful. It may be hard for most couples to begin thinking about how alimony and child support will affect their taxes. Both will have an impact when filing income tax returns. If seeking a divorce, there are differences between alimony and child support payments to consider when tax season rolls around.
Alimony is financial support paid to an ex-spouse over a specified amount of time to provide the ex-spouse an opportunity to become financially independent. A divorce or separation agreement defines the terms of alimony.
For the payer spouse, taxable income is reduced by reporting alimony payments when filing a federal income tax return. The payer can take the tax deduction even if he or she doesn’t itemize the deductions.
In order for the IRS to consider alimony as income, three criteria must be met. The alimony payments must be made with cash, check or money order. An alimony agreement must be detailed in a divorce settlement. Lastly, the spouses involved must live in separate residences. When filing an income tax return, the payer needs to have the ex-spouse’s social security number in order to deduct alimony.
The spouse that receives alimony has tax costs to consider. Alimony received is reported on the federal income tax return as earned income. Federal taxes are not withheld from alimony payments and the payee is subject to paying income tax against the alimony payments. Depending on the amount of alimony received, it is possible the recipient may owe federal taxes rather than receive a tax refund.
Although both parents have a legal obligation to financially support their children, courts award custodial parents financial support from the non-custodial parent to help provide the needs of children.
There are no tax benefits or costs associated with child support. It is not tax deductible for the payer and it is not taxable for the recipient. In addition, the government does not consider child support earned income and therefore the recipient cannot include the support in order to qualify for the earned income credit.
The only tax benefit relating to child support is being able to claim the children as dependents on a federal income tax return. Divorce settlements should specify which parent is entitled to claim the children. Both parents may not claim the children as dependents. Typically, the custodial parent claims the children as dependents. Whichever parent is claiming the children may also claim the Child Tax Credit and any associated educational credits regardless of who is paying any educational bills.
On the other hand, medical expenses paid for the children by the non-custodial parent can be claimed with the medical expense deductions. The non-custodial parent can also claim Child Care Credit for work related expenses incurred to care for children under the age of 13.
Towson Child Support Lawyers at Huesman, Jones & Miles, LLC Ensure Divorced Families are Informed
To ensure the best possible settlement negotiations when filing for a divorce, you need to be informed when making decisions. Towson divorce lawyers at Huesman, Jones & Miles, LLC are committed to Maryland divorce cases and are compassionate and sensitive to your family’s concerns. Our legal team is available to answer your questions regarding alimony or child support in our Towson, East Pikesville, or Hunt Valley offices. Huesman, Jones & Miles, LLC child support attorneys represent families in Baltimore County, Carroll County, Harford County and Howard County and throughout Maryland in Essex, Elliott City, Towson, Columbia, Bel Air, and Westminster. To schedule a free, confidential consultation call 443-589-0150 or submit an online contact form.