Interviewer: In terms of the tax consequences for both alimony and child support, how do they affect the income taxes of both parties?
Tanya: Alimony is tax deductible to the paying spouse and it is taxable to the receiving spouse. That is allowed according to the IRS code. If, however, you have circumstances where you do not want to have the tax implications, you can make it a non-taxable event.
I am going to give you an example. Say you have a husband whose income consists of a base salary and commission. If he had to come up with the full amount of alimony every month, he may have difficulty. Even though at the end of the day it is tax deductible to him, he is still having problems because his commissions can vary.
For example, if the award is $8,000 a month, at the end of the tax year, it works for him because he can deduct the yearly total. If he gave it to the former spouse non-taxed, it would only be $6000 a month. So he will not get the tax benefit at the end.
However, it is easier for him to come up with the money without the taxes. There are circumstances like that, and there are other circumstances why people take it without the tax or give it without the tax.
Most of the time, alimony is taxable to the recipient as income and tax deductible by the paying spouse. Child support has no tax implications. There is no tax benefit or detriment for child support.