Tax Tip of the Week*

INTERPLAY OF ALIMONY AND CHILD SUPPORT

The general rule for alimony is that it is deductible by the one paying it and taxable to the one receiving it. The absolute rule for child support is that it is not taxable to the one receiving and not deductible by the one paying it. A problem that occurs once in a while is when child support is disguised as alimony – whether intentionally or unintentionally. This can come about – at least in the minds of the tax people – if alimony is established to be at a certain level, but then is reduced (increases are not a problem) at a time or event that is related to, or deemed to be related to, a child. Simple example – the alimony is reduced by some amount when a dependent child reaches the age of 18. Wording like that makes the amount of the reduction non-deductible/not taxable child support from the very beginning.