How Improving Tax Filings on Alimony Could Help Foster Kids
CQ NEWS: How Improving Tax Filings on Alimony Could Help Foster Kids
By Alan K. Ota, CQ Roll Call
Posted June 6, 2016
Rep. Lloyd Doggett, D-Texas, has an eye on a new tax filing requirement for alimony income that would help pay for an expansion of federal support for foster care.
Doggett, a senior member of Ways and Means, said he was developing a plan that would require individuals receiving alimony to file a form to report income from such payments, which sometimes is underreported. The form would be similar to a 1099 form that is used to report self-employment income, among other things.
Supporters say the measure would raise about $1.7 billion over 10 years if more recipients accurately report income from alimony.
"The question is how do you ensure that it is reported. A 1099 would ensure compliance," Doggett said.
Currently, taxpayers that provide spousal support are directed to report such tax-deductible payments on the "alimony paid" line item on their 1040 tax return along with the recipient's Social Security number. But often such payments are not accurately reported, creating a gap between alimony deductions that are claimed and what's reported as income received by the former spouse.
A 2014 study by the Treasury Inspector General for Tax Administration, or TIGTA, found a $2.3 billion disparity between alimony deductions claimed in 2010 and the corresponding income that was reported for that tax year. The report found that were 567,887 taxpayers who claimed alimony deductions totaling more than $10 billion. But of those, 266,190 returns could not be matched with income on a corresponding recipient's return.
Doggett said he wanted to use revenue that would be raised from his alimony proposal to help finance a package of foster care-related measures, which would cost about $3 billion. The measures would incorporate items from a bill (HR 3781) by Doggett, including prevention of child abuse and keeping children out of foster care by providing family counseling and training.
He has been discussing the issue with Ways and Means Chairman Kevin Brady, R-Texas, and Human Resources Subcommittee Chairman Vern Buchanan, R-Fla. Senate Finance Chairman Orrin G. Hatch, R-Utah., and Sen. Ron Wyden, D-Ore., the panel's ranking member, have been discussing their own bipartisan draft version of foster care-related items.
Doggett said he hoped to rally support for such legislation in both parties, including lawmakers representing states with troubled foster care systems. For example, a federal judge has ordered Mississippi to overhaul its foster care or face a federal takeover. Another federal judge found that the foster care system in Texas violated the constitutional rights of some of the program's 30,000 children and appointed two special masters to work with the state on changes.
As Doggett develops his proposal, he could face competition from colleagues that may want to use taxes collected on alimony to raise revenue for other priorities. In the 113th Congress, former Ways and Means Chairman Dave Camp, R-Mich., used similar proposals to help finance rate cuts in his tax overhaul blueprint. The Camp plan would have raised revenue by shifting the point of taxation for alimony payments from the recipient - who typically has a lower tax rate - to the provider of spousal support, who often has a higher tax rate.
Alan Cole, an economist at the Tax Foundation, a conservative think tank, said Doggett's approach would be a good way to spur better reporting of alimony income and increased collection of taxes owed. "That's a reasonable policy proposal. It's something that would help to reduce the error rate," Cole said.