Tax Implications

If I receive a large payment of support arrears do I need to pay taxes?

Maybe, if the arrears are in regards to child support then it is never deductible by the payor. When receiving lump sum spousal support which represents an arrears of periodic payments you sometimes will need to pay taxes and this will depend on the judge. In situations in which a settlement payment has been made instead of the full amount, it is less likely that you will need to pay tax (more likely it will not be tax deductible to the payor).

However, another mechanism called income averaging may be available when lump sum spousal support is taxable in the hands of the recipient. Income averaging is available to person who have received lump sum payment representing arrears of support payments where at least $3,000 was owed which was on account of amounts owing in previous years

This allows taxation to occur as if the money was received at the time when it was owed as opposed to having to pay tax on the full amount in one year.