John and Mary were divorced last year. The divorce decree provides that John pay alimony of $10,000 per year, to be reduced by 20% on their child's 18th birthday. During the current year, John paid $7,000 directly to Mary and $3,000 to Spring College for Mary's tuition. What amount of these payments should be reported as income in Mary's current year income tax return?
a. $8,000
b. $10,000
c. $5,600
d. $8,600
Explanation
Choice “a” is correct. Alimony would be income to Mary while child support would not. Funds qualify as child support only if 1) a specific amount is fixed or is contingent on the child's status (e.g., reaching a certain age), 2) it is paid solely for the support of minor children, and 3) it is payable by decree, instrument or agreement. The actual use of the funds is irrelevant to the issue. In this case, $2,000 (20% × $10,000) qualifies as child support. The other $8,000 is alimony, which would be income to Mary.
I thought money paid directly to a college for tuition wasn't taxable. Is it because the money is earmarked specifically for alimony? So, if they weren't divorced, the $3k for college would not be taxable, right?
4 for 4
FAR 85
AUD 94
BEC 86
REG 90
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