Friday, January 16, 2015

HOW CHILD SUPPORT AND ALIMONY IMPACT FEDERAL AND MN TAX RETURNS

On behalf of Askvig & Johnson, PLLP 

Many St. Paul residents who have undergone a significant change in 2011--such as a divorce--are likely beginning to find out some of the resulting tax implications.

A change in your legal relationship status can have several effects on your federal and state tax returns. Two of the major issues are whether you should file separately or with your ex-spouse, and how child support or alimony should be reported as income and deductions.

The first item is highly personal. Whether you should file jointly, as a single or as a married couple filing separately depends on where you are in your divorce proceedings and your own financial portfolio. This is a matter best decided with your personal finances in mind, and the guidance of your family law counsel and/or accountant.

The latter is simpler. Alimony is reported on the federal 1040 form as income for the recipient and as a deduction for the payer. However, there are many qualifications that spousal support must meet in order to be considered as alimony by the IRS. To include alimony on your tax return: you must be divorced or under a separation order; you must not be living with your ex while payments are being made, unless a court order says otherwise; you cannot claim alimony if you are filing a joint tax return with your ex; and you must have a legal agreement requiring the payment of spousal support, among other things. And, payments that could be considered as child support will not qualify as alimony to the IRS.

Child support is neutral for tax purposes. This means that it is neither to be claimed as income for the recipient nor as a deduction for the payer. It is also important to note that if any child support is past due, the IRS will then count alimony payments as child support for tax purposes. This means that the payer may lose the deduction.

Many Minnesota laws as well as federal Tax Code complexities can, of course, affect one's federal and state tax status. It is thus important to seek personal counsel about your unique tax issues.


Source: Forbes, "Taxes From A to Z: A Is For Alimony," Kelly Phillips Erb, March 3, 2012

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