Each month, you get a payment from your ex for both spousal support and child support. You don’t really think about how much money is for you and how much is for your kids; you simply use this money to pay your family’s expenses. After all, all the money is going towards providing a good home for your children.
Whether money is allocated as child support or spousal support isn’t important when paying the bills. But now that it is time to pay taxes, details of your child custody arrangement can impact your tax return as well as the type of support and amount of support that you are getting could make a big difference in the amount that you pay the IRS.
The Internal Revenue Service (IRS) considers Pennsylvania child support to be tax-free for the custodial parent. You don’t have to claim the child support that you receive from your ex-spouse as income.
Instead, the parent making child support payments is responsible for any taxes. In addition, child support paid to you cannot be deducted by your ex. Spousal support is a different story.
The IRS considers spousal support payments as income.
You must claim any spousal support paid to you when filing your taxes. If you receive $3,000 a month in spousal support, you will need to add $36,000 to your gross income. Your ex may deduct these payments making his or her income $36,000 lower.
In most cases, the amounts allocated for child support and spousal support are designated in the Pennsylvania divorce agreement. However, it isn’t uncommon for agreements to lump the payments together as “unallocated family support”. If the payment isn’t specifically designated as child support, you could end up paying the (tax) consequences.
You may think that it’s obvious that the money is intended to support the children, but if your ex claims a support deduction and you fail to claim that amount as income, you and your ex may be audited by the IRS. You could even end up in Federal Tax Court.
The best way to protect yourself and your money is have a well-written and easy-to-understand support agreement. Ask your Pennsylvania divorce lawyer to make sure that your support order clearly spells out which money is intended as child support and which money is intended as spousal support or alimony.
You should also keep accurate records. Write down every payment, especially if your ex sometimes misses a payment or makes partial payments. You don’t want to pay taxes on money you haven’t received.
The Impact of Taxes
The Pennsylvania divorce attorneys at Petrelli Previtera Schimmel consider the impact of taxes when creating support agreements. We work with each client to create the best agreement for their family and their situation. To learn more, contact Petrelli Previtera Schimmel at 215-523-6900.