794 / Is child support taxed in the same manner as alimony payments?

Editor’s Note: The 2017 Tax Act eliminated the deduction for alimony for tax years beginning after 2018, and provides that alimony and separate maintenance payments are no longer included in income of the recipient. This provision is effective after December 31, 2018, but also applies to divorce or separation agreements executed before that date that are subsequently modified and specify that the new provision will apply. The new tax law did not change the tax treatment of child support. The discussion below that applies to alimony continues to apply for tax years beginning prior to 2019.

Child support. Any portion of an alimony payment specified in the divorce or separation instrument as payable for child support is not treated as alimony ( Q ).¹ In Freyre v. U.S.,² the appeals court held that because the divorce court order did not specifically designate or fix the disputed monthly payments as child support, as required in the statute³ and the treasury regulations,⁴ the payments had to be considered as alimony and, thus, were deductible by the taxpayer (prior to 2019).⁵

Even portions not specified as child support may be treated as child support to the extent that the amount of the alimony payment provided for in the divorce or separation instrument is to be reduced on the occurrence of a contingency relating to a child or at a time clearly associated with such a contingency (e.g., the year a child would turn eighteen years old).⁶ If the divorce or separation instrument provides for alimony and child support payments, any payment of less than the amount specified in the instrument will be applied first as child support, to the extent of the amount specified in the instrument.⁷ The Tax Court determined that an agreement between former spouses, absent a court modification of their divorce decree, would not alter the tax consequences of this provision.⁸ A parent was required to include in his gross income the portion of a distribution from his pension plan that was used to satisfy a back child support obligation.⁹

The Service has privately ruled that interest paid on past due child support is taxable income to the recipient parent. According to the Service, interest income is not excludable income in the same manner as amounts designated for child support are excludible. The Service reasoned that for child support to be excludable from gross income, the decree, instrument or agreement must specifically designate the sum as child support; interest that is assessed later does not come under an amount specifically designated as child support.¹⁰

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1. IRC § 71(c)(1), prior to repeal by Pub. Law No. 115-97 (the 2017 Tax Act).