Federal Tax Treatment of Domestic Support Payments

The Alimony Tax Deduction

For decades, the IRS allowed taxpayers to deduct alimony payments from their income on their federal income tax returns. The rationale was that people who paid alimony did not have the right to use and benefit from spending money they owed in support payments. As a result, the federal Internal Revenue Code granted favorable tax treatment for those who paid alimony, and required persons who received alimony to include it as taxable income on their tax returns.

In 2017, Congress passed significant reforms to the federal tax code under the Tax Cuts and Jobs Act (TCJA). Among those reforms was a reversal of the alimony tax deduction. Under the regulatory framework of the TCJA, those who pay alimony can no longer deduct such payments from their income for federal income tax purposes. Conversely, alimony recipients do not have to report support payments as income on their federal tax returns.

Proponents of the TCJA’s reform of the alimony tax deduction argue that this change should help shrink what is known as the “alimony tax gap.” Over the years, the IRS reported than there was a growing discrepancy between the amounts taxpayers deducted from their income as paid alimony and the amounts taxpayers reported as income received as alimony. In 2010, the alimony tax gap consisted of $2.3 billion in unaccounted revenue between alimony paid and alimony received.

Opponents argue that the alimony tax reforms of the TCJA misaligns the tax burden of alimony by requiring those who act merely as a conduit for their spouse’s income to also pay taxes on such amounts, despite having no control or opportunity to benefit from that income. They also argue that the TCJA will do little to shrink the alimony tax gap because the majority of taxpayers will not be subject to the new tax treatment of alimony and that taxpayers will be motivated to find ways to minimize or avoid alimony payments.

The TCJA’s reforms to the federal alimony tax deduction are consistent with Pennyslvania’s tax treatment of spousal support for state income tax purposes. Pennsylvania taxpayers are not required to report alimony received as income for their state taxes. Those paying spousal support are not allowed to deduct payments from their state taxes, as well.

The Tax Treatment of Child Support

Under federal tax law, taxpayers may not deduct child support payments from their taxable income on their federal tax returns. The Internal Revenue Code classifies child support to be a non-deductible family expense. Simply put, parents are legally and morally obligated to provide their children with adequate support. Good parents would spend their money providing for their children even if they weren’t divorced. Thus, child support is seen as an ordinary family expense that does not warrant a deduction for income tax purposes.

However, a parent who provides half of their child’s financial support can claim them as a dependent and receive a tax credit as a result. If the noncustodial parent of the child provides at least half of their child’s financial support, they can take advantage of the child-dependent tax credit if the custodial parent releases their claim to claim the child as a dependent on their tax returns. The noncustodial parent must get the custodial parent’s waiver using IRS Form 8332, or by attaching a statement regarding the same points that a Form 8332 contains.

For More Answers, Reach Out to Scaringi Law Today

If you have questions about how your divorce or child support issues impact your tax obligations, you should connect with an experienced attorney from Scaringi Law. We provide comprehensive legal representation for clients on a wide range of issues, including Pennsylvania family law matters. Because many family law issues revolve around finances, it is important to discuss the potential tax consequences of your case with a lawyer with a sophisticated understanding of Pennsylvania family law.

To schedule a consultation about your case, please call us at (717) 775-7195 or contact our office online today.