Question

7. Alimony and Child Support. (Obj. 1) Under the terms of their divorce finalized in 2017, Henry is to pay Winona $1,000 a month. The terms of the agreement specify that $550 of each payment is to be for child support. a. If Henry makes all of his required payments during the current year, how much must Winona include in gross income? What amount can Henry deduct? b. How, if at all, would your answer to Part a. change if the agreement were silent as to how much of each payment constituted child support? c. How, if at all, would your answer to Part a. change if Henry only makes 8 of the 12 required payments during the year?

Answer 1

7.

a. When alimony is made as monthly payments, it is treated as revenue receipts and taxed in the hands of the receiver. Hence when Henry makes his payments correctly for the year, such an amount will be taxed in the hands of receiver and added to her gross income until December 31 2019. Post 2019, there has been changes in law that, any alimony made after 2019 will not be taxed in the hands of the recipient. Here since divorce is finalized by 2017, Winona is taxed for the payments. There is no deductions are available for Henry. Hence Winona's taxable income will include an amount of $1000 per month for the current year in her gross income.

b. No. The amount paid for child support is not included with the alimony amount. The parents have to show their payments towards child support as a separate amount. Child support is nothing but the amount provided for the basic needs of the Child by the Parents after their divorce.

c. If Henry makes only 8 payments out of 12 months, then 8 monthly payments = 8 *1000 = 8000 will only be included in the hands of the receiver as a part of her gross income.