Child Support

Where the divorce decree or separation agreement requires a cash payment and specifically allocates a fixed amount or fixed portion of the payment for child support, only the amount in excess of the amount fixed as child support is treated as alimony. Child support payments can terminate on the happening of a contingency such as the death of the custodial parent.

Example—Part Alimony

H agrees to pay W $2,000 a month for the next 10 years, all payments to terminate if W dies. The agreement states that 25% of each payment is to be used for the support of their son. Result: only $1,500 of each payment is treated as alimony. There is no inclusion in income and deduction for the other $500 of each payment because it is fixed as child support.

Example—No Alimony

Assume the same facts as in the preceding example, except that the agreement states that the entire $2,000 monthly payment is to be child support. Hence, none of the payments is treated as alimony.

As illustrated by the above examples and the election to treat apparent alimony payments as non-alimony, 55 the parties are given considerable flexibility in deciding whether support payments are taxable as alimony. As long as the instrument designates a specific sum or portion as child support, that designation will be respected. 56

/Footnote/ 55 §71(b)(1)(B). The non-alimony election is explained at ¶1310.01.A.5, above.

/Footnote/ 56 Regs. §1.71-1T(c), Q & A-16.

Example—Parties' Designation Respected

H agrees to pay W $2,000 a month for the next ten years, all payments to terminate if W dies. For the first five years $1,000 of each payment is to be used as child support. For the last five years $1,300 of each payment is to be used as child support. Hence, during the first five years $1,000 of each payment is alimony, and over the last five years only $700 is alimony.

A reference in the instrument that payments designated as child support relieve the payor spouse of his support obligation under state law is not necessary. 57 The payments can be treated as child support for tax purposes even though the payor may be obligated to make additional child support payments. And, a payment can be child support for tax purposes even though the parent no longer has a legal obligation under state law to support that child. In other words, child support can be paid for the support of an adult child. 58 No payments that are designated for a child's support, even after that child reaches the age of majority, are treated as alimony.

/Footnote/ 57 Abramo v. Comr., 78 T.C. 154 (1982).

/Footnote/ 58 Emmons v. Comr., 36 T.C. 728 (1961).

The total payment for child support need not be numerically fixed. As used in the statute, the word "fixed" means that the total of the amounts actually paid can be precisely allocated between alimony and child support. 59 Accordingly, a requirement in the divorce decree that H pay the college tuition costs of the children is sufficient to fix the actual tuition payments made by H as child support. 60

/Footnote/ 59 Abramo v. Comr., 78 T.C. 154, 161 (1982).

/Footnote/ 60 Sperling v. Comr., 726 F.2d 948 (2d Cir. 1984).

Example—Support Payments May Vary

H wishes to provide for his son's college education and for graduate school. The divorce agreement provides that H will pay W an amount necessary to cover all of their son's tuition expenses after the son graduates from high school. The amount of H's payments to W for all tuition costs are treated as child support payments.

As the above example illustrates, a reference to a specific dollar amount need not be made in the instrument in order for a payment to be "fixed" as child support. And the payments may fluctuate from year to year. 61 The purpose of the "fixed" requirement is that the instrument contain language that will allow a determination of how much of each payment is for child support. 62 Although the statute does not require the instrument to specifically segregate a specific amount or portion of each payment as child support, without the ability to ascertain from language contained in the instrument how much of each payment is actually for child support, the entire payment will be treated as alimony.

/Footnote/ 61 Regs. §1.71-1T(c), Q & A-16.

/Footnote/ 62 Abramo v. Comr., 78 T.C. 154, 161 (1982).

Example—Alimony Where No Designation

H agrees to pay W $2,000 a month for the next 10 years, all payments to terminate if W dies. W has custody of the child. The agreement states that if H makes the monthly payments, he is relieved of all support obligations for their child. Although H and W intended that W use the payments she receives to support their child, the entire $2,000 payment is treated as alimony because it cannot be determined from the agreement how much of each payment is for child support.

Example—Proof Irrelevant

A payment for "the support and maintenance of the family," without more, will be treated in its entirety as alimony. 63 The portion allocable to the child is not specified or determinable from the language of the instrument. It is irrelevant that the payee spouse can prove the amount of each payment that she actually used to support the child.

/Footnote/ 63 Neu-Kraemer v. Comr., T.C. Memo 1986-412.

In determining how much of each payment is for child support, the "fixed" requirement is also met if a payment is (i) subject to reduction on the happening of a contingency "relating to" the child, 64 or (ii) is subject to reduction at a time which can clearly be "associated with" a contingency related to the child. 65 In both situations the contingency or calendar date must be specified in the instrument.

/Footnote/ 64 §71(c)(2)(A). See, e.g., Hammond v. Comr., T.C. Memo 1998-53 (Payments labeled "alimony" in divorce instrument held to be nondeductible child support as payments were to terminate on child's 18th birthday).

/Footnote/ 65 §71(c)(2)(B). Regs. §1.71-1T(c), Q & A-16.

Examples of contingencies "relating to" a child include the child's attaining a specified age or income level, marrying, dying, leaving school, leaving the spouse's household, or obtaining employment. 66

/Footnote/ 66 Regs. §1.71-1T(c), Q & A-17.

Example—Contingencies "Relating to"

H agrees to pay W $3,000 a month for the rest of her life. The payments are to be reduced by $1,000 a month when their only child, who is living with W, reaches age 21 or graduates from college, whichever is later. The reduction of the payments to $2,000 a month is a reduction on the happening of a contingency relating to a child. Therefore, only $2,000 of each $3,000 monthly payment is treated as alimony. After the payments are reduced to $2,000 a month, the entire $2,000 payment is treated as alimony. Also, W's death, which terminates H's obligation to pay the entire $3,000 a month or the reduced $2,000 a month, is not the happening of a contingency relating to a child. As long as the $3,000 monthly payments are made, $1,000 is treated as child support and $2,000 as alimony.

If the parties in the above example do not want to treat the remaining $2,000 a month as alimony, they have the ability to eliminate alimony treatment for that $2,000 by making the non-alimony election. 67 A reduction happening as a result of contingencies that do not relate to a child will not taint the amount of the reduction as child support.

/Footnote/ 67 §71(b)(1)(B). The non-alimony election is explained at ¶1310.01.A.5, above.

Example—Remarriage Not a Contingency

Assume the agreement in the preceding example also provides that if W remarries, the monthly payments are reduced from $3,000 to $1,000 a month. This reduction is not the happening of a contingency relating to a child. As long as the $3,000 monthly payments continue, $1,000 is treated as child support and $2,000 as alimony. If W remarries, all of the reduced $1,000 monthly payment is treated as child support.

Although the parties may elect to treat alimony as non-alimony, there is no similar election to treat payments "fixed" as child support as alimony. However, if the parties desire to treat payments intended as child support as alimony, they can do so by ensuring that they meet the requirements of alimony (as discussed at ¶1310.01.A, above) and that they are not "fixed" as child support. A payment is not "fixed" as child support if the divorce or separation instrument does not explicitly make a provision for child support and it can be shown that the payments are not eliminated upon the happening of a contingency "related to" a child, 68 or the payments are not reduced at a time which can be "associated with" a contingency related to a child. 69

/Footnote/ 68 §71(c)(2)(A). E.g., Ambrose v. Comr., T.C. Memo 1996-128 (Temporary family support order did not expressly allocate between spousal and child support; documents were silent as to happening of any contingency related to children); PLR 9625050 (Payments escape classification as child support under §71(c) and Regs. §1.71-1T(c), even though language in divorce decree called for family support payments, because payments not subject to contingency related to child or at a time clearly associated with such contingency).

/Footnote/ 69 §71(c)(2)(B).

Example—Payments Must Be Fixed

H and W intend that $500 of the $2,000 monthly payment be for the support of their child. W has custody of their child. Their divorce decree provides that H is to pay W $2,000 a month for the rest of her life. On the date their divorce decree became final, their child was exactly 11 years old. The entire $2,000 monthly payment is treated as alimony because the $2,000 payment will continue for as long as W is alive regardless of the happening of an event with respect to their child. If the monthly payment is to be reduced to $500 in the event W remarries, the entire $2,000 payment still qualifies as alimony. In other words, there is no indication from anything in the document that the payments will be reduced when it becomes clear that the child no longer needs to be supported by his parents.

But, suppose in the example above that H and W desire that the monthly payments be reduced by $500 when their 11-year old child reaches age 21. Can H obtain an alimony deduction of $2,000 instead of $1,500 a month and also have a $500 reduction in his monthly payment after ten years have elapsed? In other words, can the payment reduction rule be circumvented by substituting calendar dates for child-related contingencies?

Example—Calendar Dates

Using the facts in the preceding example, assume that the divorce decree provides that H is to pay W $2,000 a month for the first 10 years and $1,500 a month thereafter, all payments to terminate if W dies. There is no reference in the divorce decree to a contingency relating to their child. The calendar date on which the monthly payments are reduced just so happens to fall on the same day as their child's 21st birthday, but this coincidence is not noted in the divorce decree. Will the entire $2,000 be treated as alimony?

That is where the "associated with" test comes into play. This test treats the payments as "fixed" for child support if any amount is reduced at a time which can clearly be "associated with" a contingency relating to a child. 70 In effect, the "associated with" language is a facts and circumstances test that arguably could be interpreted to say that any time the calendar date for the reduction in the payments happens to occur around the same time that support payments for a child would normally terminate, the amount of the reduction is "fixed" as a payment for child support. Luckily, however, this broad reading of the "associated with" test is not the law.

/Footnote/ 70 §71(c)(2)(B).

There are only two specific situations where a reduction of payments will be presumed to be associated with a contingency relating to a child. 71 Even in these two situations the payor spouse can rebut the presumption by a showing that the date of reduction was independent of any contingencies relating to the child. 72

/Footnote/ 71 Temp. Regs. §1.71-1T(c), Q & A-18.

/Footnote/ 72 Id. (Third paragraph).

The first situation deals with a reduction of payments not more than 6 months before or after the date the child is to attain the age of 18, 21 or the local age of majority. The second situation is where the payments are to be reduced on two or more occasions which occur not more than one year before or after a different child attains a certain age between the ages of 18 and 24, inclusive. The measuring age in the second situation must be the same for each child. The first situation can apply any time there is an alimony payment that is reduced at a future calendar date. The second situation, which applies only when there is more than one child, is not as broad in its coverage as the first category, but if it applies, the range of time periods covered is longer. Hence, a taxpayer may escape the first situation only to be caught in the second.

The first situation would treat the preceding example as a reduction at a time associated with a contingency relating to a child because the reduction occurs on the child's 21st birthday. Therefore, only $1,500 a month would be treated as alimony and $500 would be fixed as child support. Since the first situation adopts a narrow 6-month time frame that brackets ages 18, 21 or the age of majority, it is fairly easy to avoid being caught by its embrace.

Example—The "Associated With" Test

Using the facts from the preceding example, assume that the divorce decree provides that H is to pay W $2,000 a month for the first 11 years and $1,500 a month thereafter. The age of majority in their state is age 20. Since the reduction date falls on the child's 22nd birthday, it occurs more than 6 months after the child attains the ages of 18, 20 or 21. Therefore, the reduction will not be treated as "associated with" a contingency relating to a child.

The second situation described in the regulations can best be explained by using the illustration contained in those regulations. 73 In this example there are two children, C (born on 7-15-70) and D (born on 9-23-72). The reductions occur on 1-1-91 and 1-1-95. At the time of the first reduction on 1-1-91, C is age 20 years, 5 months and 17 days. At the time of the second reduction on 1-1-95, D is age 22 years, 3 months and 9 days. Using C's age at the time of the first reduction, the range of time one year before and one year after the first reduction is 19 years, 5 months and 17 days to 21 years, 5 months and 17 days. Using D's age at the time of the second reduction, the two-year range of time for the second reduction is 21 years, 3 months and 9 days to 23 years, 3 months and 9 days. If there is an overlap between these two separate ranges, then both reductions are treated as child support payments. As the following chart illustrates, there is an overlap from 21 years, 3 months and 9 days to 21 years, 5 months and 17 days.

Double click to view graphic illustration

/Footnote/ 73 See Temp. Regs. §1.71-1T(c), Q & A-18, Example.

Should a taxpayer wish to avoid the application of the second situation, he should time the reductions so that their ranges do not overlap.

If a payment is designated in the separation or divorce instrument as being partly for child support and if the actual payment made is less than it is supposed to be, the payment is first allocated to child support and any amount left to alimony. 74

/Footnote/ 74 Bodine v. Comr., T.C. Memo 1984-143; Hau v. Comr., T.C. Memo 1983-471; Lindsay v. Comr., T.C. Memo 1970-6; and Flagg v. Comr., T.C. Memo 1968-30.

Example—Allocated First to Support

H agrees, in a written separation agreement, to pay W $1,000 a month until she dies. The agreement specifically provides that $300 a month is for child support. In the fourth month H pays W only $800. Out of the $800, $300 is allocated to child support and $500 to alimony.