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The tax implications of support payments

On Behalf of | Sep 14, 2022 | Alimony

As part of a divorce settlement, a New Jersey judge may decide that you are entitled to receive alimony and child support payments from your spouse. Conversely, you may be ordered to make alimony and child support payments based on the facts laid out during settlement talks or during a divorce trial. Whether you receive or make such payments, it’s important to understand how they are treated for tax purposes.

Alimony is no longer tax deductible

Prior to the passage of the Tax Cuts and Jobs Act, alimony payments were generally treated as income to the recipient. The person making the payments would be able to deduct them from his or her taxable income. However, after the passage of the TCJA, alimony payments are not considered income nor do they reduce the taxable income of the individual making them. It’s worth noting that new rules generally apply only to those who were divorced after the start of 2017.

Child support is not tax deductible

In addition, child support payments are also not considered income. Instead, they are considered to be contributions made by a noncustodial parent that would normally be made if that person was still in a relationship with the child’s other parent. This also means that child support payments cannot be used to reduce a noncustodial parent’s taxable income.

Other benefits may be available

In addition to alimony or child support payments, parents may be entitled to the child tax credit as well as additional deductions. The value of these credits or deductions may play a role in determining how much you receive from your spouse in a divorce settlement.