Question

Susan received $45,000 from her ex-husband Brian in 2013. According to their divorce settlement, Brian should pay $45,000 to Susan every year until their son Joshua turns 18, then the amount will be reduced to $25,000. Which of the following statements regarding income tax is true?

Susan should pay income tax on $25,000, and Brian should pay income tax on $20,000.

Susan should pay income tax on $45,000.

Brian should pay income tax on $25,000, and Susan should pay income tax on $20,000.

Brian should pay income tax on $45,000.

Answer 1

Susan receiving $45,000 from her ex-husband Brian but this payment has to parts –

1. Alimony of $25,000 per years
2. Child Support of $45,000 - $25,000 = $20,000 per year until their son Joshua turns 18

As per Income tax rules –

Alimony which is spousal support payments; it is taxable for the spouse receiving the payments and tax deductible for the spouse making the payments that means $25,000 is taxable for Susan.

Child support payments are not tax deductible for the parent paying the support that means Brian will not get any tax benefit on the amount and he has to pay the income tax on this amount of $20,000. And that amount is not taxable income for the parent receiving the support that means amount is non-taxable for Susan.

Therefore correct answer is option: Susan should pay income tax on $25,000, and Brian should pay income tax on $20,000.