Recent US Tax Court Decision Clarifies Tax Treatment of Alimony and Child Support


With tax season approaching, family law lawyers in Pasadena report that many recently divorced people find themselves wondering how to handle child support and alimony payments on their tax returns.

Child support is neither taxable income for the receiving parent nor tax deductible for the paying parent. Alimony, however, is both taxable income for the recipient and a tax deduction for the payer.

Since claiming alimony as a tax deduction can often result in a substantial savings for the higher earning party, it's common for those paying both child support and spousal support to want as much of their payment as possible classified as alimony. This means that confusion may arise when partial payments are made to a former spouse in lieu of fulfilling the entire court-ordered child support and alimony obligation.

A recent United States Tax Court opinion from California, Joseph L. Becker, TC Summ. Op. 2015-2 (Tax Ct.), clarified the rules regarding the treatment of partial payments on tax returns. This case reaffirmed that child support takes precedence whenever a payer does not have the income necessary to pay both child support and alimony. This means that he or she is not entitled to deduct any of the payments until the court-ordered child support has been paid in full, even if he or she attempts to declare the partial payment spousal support by reaching an agreement with the recipient.

There are sizable penalties for claiming improper deductions on your annual tax return, so it's best to always seek professional advice when you have a question about which divorce-related deductions you are allowed to claim.

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