April 15 is around the corner, which means you should have a good grasp of the tax consequences for spousal support and/or child support. If you are still completing your tax return or haven’t started yet, consider the information here as a primer to help you think about how these two important support obligations can affect your tax situation.
Is Spousal Support Taxed?
It depends. Received spousal support payments are taxed by California and may be taxed by the federal government, depending on when a spousal support order was executed.
Due to changes under the Tax Cuts & Jobs Act of 2017, divorce or separation agreements executed after Dec. 31, 2018 don’t require people receiving spousal support to report it on their federal income tax return. If your divorce or separation agreement was executed on or before that date, though, you must still report your spousal support income to the IRS.
California law differs in that anyone who receives spousal support payments is obligated to report it as income on their California tax return.
Is Spousal Support Tax Deductible?
Again, it depends. California still allows those paying spousal support to deduct it from their taxable income. The Tax Cuts & Jobs Act of 2017 removes this ability at the federal level, but only for those who were required to pay spousal support after Dec. 31, 2018. If your divorce or separation agreement was finalized on or before that date, you can continue to deduct your support payments from your taxable income.
Is Child Support Taxed or Tax Deductible?
No. At both the federal and state levels, child support is neither taxed nor tax deductible. The reasons for this are to ensure a child can fully benefit from the resources provided by the paying parent and so that the paying parent doesn’t voluntarily pay more in child support to avoid taxes.
Noncustodial parents who pay child support might be tempted to claim child tax credits to offset the expense of child support, but they must be very careful and ensure this is allowed. The courts often determine which parent can claim the child tax credit, and it’s usually the custodial parent. In some cases, parents can split the tax credit.
Do You Need Help with a Support Order?
Child support and spousal support can affect your life and financial situation for a long time. If you have any questions about these types of orders or require legal assistance to ensure your interests and rights are protected, you can reach out to Claery & Hammond, LLP for help.
Learn more during a free consultation. Contact us online to get in touch today!
