Learn About Child Support And Tax Return Issues

How Child Support Can Positively and Negatively Affect A Parent’s Tax Return

Parents must be attentive of child support’s tax treatment when it comes to both separation or divorce besides the issues that involve child custody. After all, how child maintenance is written in a settlement agreement can have serious tax consequences.

Child Support: It Is Not Tax Deductible

For the person who must pay child support, it is not tax deductible. And, for the parent receiving the income, it is not taxable income. The payor cannot report it as income on the tax return and the paying parent cannot use it as a deduction…unlike the alimony payments.

The law looks at child support as a family expense. Child support needs to be paid separately from other payments and be designated in the separation or divorce agreement as “child support”. Should the agreement not stipulate the designated share of each payment as being child support or if it combines the child support payments with alimony, no payments will be seen as child support for taxation purposes. For the spouse receiving the payment, this can be very bad, as the payment will be taxed as alimony.

Direct expenses a payor souse pays toward a child support order may not be deducted as a business expense.

Children and Tax Exemptions

As a rule of thumb, to get a tax exemption on children, the paying parent needs to supply approximately half of the child support for the tax year. The Internal Revenue Service grants permission to custodial parents to count children as a tax emption in four situations:

1 – They live away from non-custodial parents for a period of six or more months.
2 – They have a child support agreement.
3 – They have a separation agreement.
4 – They have a divorce decree.

However, a non-custodial parent can claim his/her child as an exemption if the exemption occurs because of one of two reasons:

1 – Custodial parent surrenders his/her right to claim the dependent exemption by signing the IRS Form 8332 and the non-custodial parents includes the declaration on the tax return.
2 – The separation agreement or divorce decree includes a waiver in it that the custodial parent agreed to.

Who Can File As Head Of Household

A parent is entitled to file as head of household if he/she has contributed no less than 50 percent of the cost to maintain the home during the tax year. If both parties fund the same amount of money, neither one will be permitted to file on this filing status.

More Tax Credits For Dependents

If a parent is paying for their child’s post-secondary education, which allows them to obtain a full deduction of it on their federal income tax, they must have a right to claim that child as their dependent.  Non-custodial parents able to claim their child as a dependent are permitted for other education tax credits like the hope credit or lifetime learning credit.

Parents looking to file for the child care tax credit will find that the percentage of the expenses is based on their income. The maximum child care amount for one child is $2,400 or $4,800 for two or more children. Non-custodial parents are not allowed this credit even if permitted to the dependency exemption and can successfully claim the qualifying child as their dependent.