For North Dakota and Minnesota residents facing their first tax season after a divorce, it's essential to know how alimony and child support may impact your income taxes. This is true for both those paying and receiving the money.
If you are receiving alimony, it is considered income by the Internal Revenue Service and should be listed under the Income Section on Form 1040. That's not the full extent of your obligation to Uncle Sam. You should also ensure that your ex-spouse has your Social Security number so that he or she can properly report paying the alimony. The IRS can fine the person receiving the alimony if the payer was not able to obtain the recipient's SSN.
If you are paying alimony, your payments may be considered a tax deduction. That lowers the amount of income on which you have to pay taxes. This may sound simple. However, it's important that the payer and the recipient list the same amount of alimony on their tax returns. If they don't, they may both face issues with the IRS.
There are some cases in which alimony is not tax deductible. These include:
-- If you and your ex-spouse still live in the same house-- If you have paid alimony in some form other than check, money order or cash-- If your ex-spouse has remarried
Unlike alimony, child support is not considered taxable income for the recipient. Child support payments are not reported on your tax forms.
Likewise, these payments cannot reported as deductions by the payer. However, if you are paying child support, you may be able to claim the child for whom the support is paid as a dependent.
If you are paying or receiving alimony and/or child support for the first time or if changes have been made to either or both of these agreements, it may be worthwhile to consult a tax professional. This can help ensure that you are abiding by the tax laws and taking advantage of any tax breaks to which you may be entitled. It may also be advantageous if the two former spouses can consult with each other to help make sure that they are not reporting contradictory information to the IRS. Divorce is a difficult enough process to go through. No one wants an avoidable audit on top of that.
Source: 1040.com, "Reporting Alimony and Child Support" accessed Mar. 02, 2015