When do I have to pay tax on alimony or spousal and child support payments?

The rules differ for spousal and child support, as explained below.

Support for Spouses. Alimony or support payments made to a spouse or common-law partner are taxable to the recipient and deductible by the payor. In the year of separation or divorce, however, the payer may claim either the deduction for support or the spousal amount, but not both. The only way for the recipient to avoid this tax status is to receive a lump sum, in which case the payment is neither deductible nor taxable.

Making Instalment Remittances. The spouse who receives the taxable amount will often be unprepared for the tax consequences when a large balance due is due on April 30. In addition he or she may need to pay quarterly instalment payments on this income in the year after it is first paid and reported. This should be discussed before the separation or divorce papers are finalized to ensure the net tax result intended is actually paid and received.

Support for Children. For all agreements or court orders after May 1997, child support payments are not taxable to the recipient or deductible by the payor. For income tax purposes, any support stipulated in an agreement or court order is deemed to be child support if it is not identified as spousal support.

Complications can arise when support payments are in arrears. All arrears payments are deemed to be child support payments until child support is up to date. Subsequent payments are considered to be spousal support payments that are taxable to the recipient and deductible to the payor.

Example: Martin lost his job in 2012 and was not able to keep up with his required support payments. He was required to pay $500 per month in spousal support and $1,000 per month in child support. For the year, he paid $15,000. For income tax purposes, this is deemed to be $12,000 child support (the required amount) and $3,000 spousal support. Martin may deduct only $3,000 of the $15,000 paid and his ex-wife is only required to report $3,000 as income from spousal support.

Excerpted from Jacks on Tax. © All rights reserved.