Q: What is the IRS’s “Child Contingency Rule”?
A: The IRS’s Child Contingency Rule states that when alimony payments end on or around the same time as a child-related event (e.g. graduating from high school) all alimony payments leading up to that child-related event may be reclassified, by the IRS, as child (not spousal) support. Further, the Child Contingency Rule states that any tax benefits received by the payer of support, and any taxes paid by the receiver of alimony (which is later reclassified as child support) are to be returned – the payer will owe the IRS money and the receiver will receive a refund of taxes previously paid on alimony received.
Q: What triggers the Child Contingency Rule?
A: Support payments that would otherwise qualify as alimony may be treated as child support, by the IRS, to the extent that the payment is reduced or eliminated either:
- On the happening of a contingency relating to your child (e.g., graduation from high school, turning 18); or
- At a time that can be clearly associated with the contingency.
However, you can overcome those presumptions by showing that the determination of the time at which the payments are to be reduced/eliminated was determined independently of any contingencies relating to your children. In other words, that the timing was mere coincidence. For example, if you can show that the period of alimony payments is customary in your local jurisdiction (such as the “rule of thumb” in Northern Virginia that the alimony duration is often equal to one-half the length of the marriage) you may be able to overcome the presumption and, therefore, overcome the harsh IRS penalties for tying alimony to a child-related event.
Q: What sorts of other “child-related” events is the IRS looking for?
A: Per the IRS, a contingency relates to your child if it depends on any event relating to that child. It does not matter whether the event is certain or likely to occur. Events relating to your child include the child’s:
- Reaching a specified age or income level;
- Graduating high school;
- Becoming employed;
- Leaving the household;
- Leaving school; or
Q: What are the time parameters for the Child Contingency Rule?
A: The IRS may automatically reclassify your alimony payments as child support payments, pursuant to the Child Contingency Rule, in the following situations
- The payments are to be reduced not more than 6 months before or after the date the child will reach 18, 21, or local age of majority (18, in Virginia)
- The payments are to be reduced on two or more occasions (only in families where there are 2 or more children) that occur not more than 1 year before or after a different one of your children reaches a certain age from 18 to 24 (the IRS defines “a certain age” as the age of your first child at the time of your first stepped down reduction in alimony). This certain age must be the same for each child, but need not be a whole number of years.
Much of the information for this article comes from IRS Publication 504, online
Posted by Robin Graine, JD, Virginia Supreme Court Certified Mediator
This blog and its materials have been prepared by Graine Mediation for informational purposes only and are not intended to be, are not, and should not be regarded as, legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Internet subscribers and online readers should not act upon this information without seeking professional counsel.