Couples who have decided to end their marriage will need to address a wide variety of financial issues. During this process, spouses will not only want to make financially advantageous decisions, but they will need to consider how these decisions will affect their taxes. One divorce-related tax issue that may arise involves determining how taxes will apply to child support or spousal support payments made by one party to the other.
Taxes on Support Payments
In the past, child support and spousal support were taxed differently. The person who paid spousal support was able to deduct these payments from their taxable income, and the person who received spousal support was required to report these payments as part of their income and pay taxes on the amount received. Child support was handled differently, with the payor not being allowed to deduct payments, and the payee not reporting payments as income.
The tax laws changed a few years ago, and for divorces that were completed on January 1, 2019 or later, spousal support and child support are taxed the same. Payors of support cannot deduct payments, and payees are not taxed on the payments they receive. This may make the consideration of tax-related issues during divorce more straightforward. However, those who are currently paying spousal support from a divorce that was finalized before 2019 will still be able to deduct these payments, and they will want to be sure to understand how the decisions they make will affect their taxes going forward.
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