Taxpayers who are going through a divorce or a marital separation often have questions about the tax ramifications associated with the receipt of maintenance and/or child support payments. Before filing your taxes, it is important to fully understand the tax laws and tax consequences that are applicable to your situation. In spite of the difficulties that you are experiencing, the IRS will still expect you to file your taxes correctly and on time. Using a tax professional to prepare and record your taxes during a divorce can provide you with the peace of mind you need during these times of confusion and financial uncertainty.
1. Maintenance payments are not considered taxable income
Maintenance, was previously defined by the IRS, as earned income and taxable to a recipient in the year received. Further, previously, the amount of maintenance paid to a former spouse was deductible and could be claimed in the year paid on the IRS Form 1040.
This all changed in 2017 with enactment of the “Tax Cut & Jobs Act”. Now, for decrees entered after January 1, 2019, maintenance, like child support, is not treated as taxable income to the payee and the payor is not entitled to a deduction. This Act is not retroactive – so existing decrees are not impacted.
In response to this, the maintenance and child support laws in Colorado were modified – reducing the formula maintenance, instructing the Courts to consider the tax implications of a maintenance award and, if child support is involved, including the tax consequences in the child support calculation.
2. Child support payments are not considered taxable income
Child support payments are neither deductible by the payor nor taxable to the payee. When you total your gross income to see if you are required to file a tax return, do not include child support payments received.