1) CHILD SUPPORT PAYMENTS:
Child support payments are neither deductible from the payor's income nor included in the recipient's income for tax purposes. As a result, the payor parent will pay income tax on the money they use to pay child support, while the recipient parent will not have to pay taxes on the child support payments that they receive.
2) SPOUSAL SUPPORT PAYMENTS:
A) Periodic Payments:
Periodic spousal support payments are payments for the maintenance of a spouse which occur on a routine schedule. Although these are typically paid on a monthly basis, they may be paid at other intervals.
In contrast to child support payments, periodic spousal support payments may be deductible from the income of the payor spouse and included in the recipient's income for tax purposes. In order for this to be true, two conditions must be met;
1) There must be a court order or written agreement in place which clearly states the amount to be paid as spousal support; and
2) There must not be any outstanding child support payments owing.
If these conditions are met, the payor spouse will not have to pay tax on the money that they use to pay spousal support, while the recipient spouse will have to pay income tax on the payments they receive.
B) Lump Sum Payment:
Lump sum spousal support is spousal support paid by way of a single payment, rather than by reoccurring payments.
Like child support payments, lump sum spousal support payments are neither deductible from the payor spouse's income nor included in the recipient's income. The payor spouse will pay income tax on the money they use to make a lump sum spousal support payment, while the recipient spouse will not have to pay income tax on any lump sum spousal support payment that they receive.
CONSULTING A LAWYER
For more information on this topic, please consult a lawyer at Wise Scheible Barkauskas. A lawyer can help you better understand the tax consequences of being the payor or recipient of support payments. A lawyer can also assist you and your spouse to structure your spousal support payments in a way that decreases your overall tax burden, resulting in more money in your family's hands.
It is particularly important to speak to a lawyer if you and your spouse are in the process of deciding whether to proceed with lump sum or periodic spousal support payments as the tax consequences of this decision could be significant.