Should you pay taxes on your support payments?
The Internal Revenue Service (IRS) considers California child support to be tax-free for the recipient; however, spousal support must be taxed. If you are not careful in the wording of your marital settlement agreement, you could end up with significant tax consequences.
In most cases, the individual amounts that are to be paid for child support and spousal support are designated in the California divorce or separation agreement. However, some agreements may lump the payments together as "family support" or "alimony.” When child support is not specifically designated, the purpose of the payment may not be clear. What if your ex-spouse considers it spousal support and you consider the money child support?
If your ex-husband claims a spousal support deduction, but you fail to claim that amount as income, both you and your ex may be subject to an IRS audit. If there is no agreement about the purpose of the money, you may end up in Federal Tax Court.
The best way to avoid an IRS audit is to have a well-written, easy-to-understand support agreement. The agreement should designate what part of a support payment is intended for child support and what part is intended as spousal support. Keep records of every payment, especially if your ex-spouse misses a payment or makes partial payments. You don’t want to overestimate your tax obligation.
Do you have questions about California child support or support agreements? Contact the San Francisco child support attorneys at the Law Offices of Paul H. Nathan. Our attorneys are dedicated to giving women a fair start after a divorce. To schedule an appointment, call 415-341-1144.