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Child Support and Taxes

Child Support has several important tax implications ranging from whether it should be included in income or tax deductible, and who may claim the children as dependents on their taxes. 

Dependency Exemptions & Child Tax Credit
 

One issue concerning child custody that is often overlooked is which parent will be entitled to claim the dependency exemption and child tax credit once the divorce is final. This issue is important as the dependency exemption and child tax credit are regularly relied upon by parents to reduce their federal income tax liability. According to Internal Revenue Code, in situations where the parents are divorced, legally separated or separated pursuant to a separation agreement, or have lived separately for the last six months of the calendar year, the custodial parent will receive the dependency exemption. I.R.C. § 152(e)(1)(A)… (continue reading)

For tax purposes, the custodial parent is the parent having custody of the child for the greater part of the calendar year

If I Pay Child Support, Can I Claim my Children As Dependents on my Taxes?
 

Generally speaking, IRS rules only allow custodial parents to claim the dependency exemption for his or her qualifying children. For income tax purposes, the IRS defines the custodial parent as the parent with whom the child lived for the greater part of the year. So, even if you are paying child support for the child’s benefit, you will likely be unable to claim your children as defendants on your taxes if you are a non-custodial parent.

Although only the custodial parent is entitled to claim the dependency exemption in most cases, a noncustodial parent may be able to claim the exemption if the special rule for children of divorce or separated parents applies. This rule only applies if: 

  • One or both parents provided more than half of the child’s total support for the year;
  • One or both parents have custody of the child for more than half of the year;
  • and, The parents are divorced, legally separated, or lived apart at all times during the last six months of the year.

If all the above conditions are met, and the custodial parent signs a “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent” (IRS Form 8332), or provides a substantially similar statement to the non-custodial parent, the non-custodial parent may claim the dependency exemption for any qualifying child. 

Is Child Support Tax Deductible?

Many considering divorce, and even some individuals currently going through the divorce process in Georgia, are often surprised to learn that that alimony is tax deductible for the payor and treated as taxable income to the recipient spouse. After learning this information, the next logical question is: “Are child support payments tax deductible too?”

Unfortunately for non-custodial parents ordered to pay child support post-divorce, unlike alimony payments, child support payments are not deductible by the payor. Consequently, child support payments are not treated as taxable income to the custodial parent receiving the child support payments.

  Practice Pointer - Tax Advice

Taxes can be a tricky area in divorce. Whenever evaluating the tax effect of alimony or child support on your divorce, it is important to seek the advice of a tax professional.

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