Tax season is in full swing now, and many people are likely scrambling to get everything filed. Filing taxes is often complicated as it is, but for people who receive or pay alimony or child support, it can be even more of a chore.
Alimony and child support affect taxes in much the same way, and getting either of them wrong when you file can lead to serious consequences. To make sure that you know the rules and possible errors to avoid, read on.
Alimony and Child Support in Taxes
Alimony, sometimes called spousal maintenance in Texas, is the money paid to an ex-spouse after divorce. Child support is the same, but with the added purpose of providing aid for the children.
Individuals who pay court ordered alimony or child support to a former spouse are generally able to deduct those amounts from their taxes. Similarly, formal agreements with an ex-spouse to provide support payments after divorce are usually also deductible, even if they are not court ordered.
Alimony or child support received, whether it is court ordered or not, is considered taxable income by the IRS.
Obviously, the payment amounts must match on each parent’s tax return. Otherwise, the IRS is likely to notice a discrepancy and order an audit, which nobody wants. At best, it turns out to be a miscalculation and the IRS collects any owed taxes. At worst, you could be charged with tax fraud, a very serious crime.
Claiming Dependents on Taxes
Another issue to work out is who will claim any children as a dependent since the IRS does not allow divorced parents to both claim their children as dependents.
It is not uncommon to work out a deal between parents so that both have an opportunity to claim dependents. For example, if there are two children, one parent could claim the first as a dependent, and the other parent may claim the other. If there is one child, the parents may opt to alternate who is able to claim the child as a dependent each year. If both try to claim the same child in the same year, the IRS would see this as a red flag.
If a deal cannot be worked out between the parents, then the IRS will generally say the custodial parent (whichever parent has custody for the largest part of the year) has rights to claim the dependent.
Speak with a qualified divorce lawyer at The Julian Firm, P.C. to find out more about alimony and child support payments and how they may affect your taxes.