If you’re paying or receiving child support, you may be wondering what the tax implications of that money will be. There are many different ways that the IRS can view this kind of income, and understanding your individual situation is crucial to ensuring that you pay the correct amount of taxes on your receipts.
The Law on Child Support
In general, child support payments are not deductible by the person paying them or taxable to the recipient. Instead, the IRS considers them to be a form of personal expense. The person receiving the support does not have to list it as income, but they must still report the amount they receive on their tax returns.
Custodial Parent versus Non-Custodial Parents
The tax code treats the parent with whom a child lives the majority of the time as the custodial parent. This parent can claim the child as a dependent on their tax return unless they sign a waiver relinquishing that right. The custodial parent will likely need to show that they provided more than half of the child’s financial support during the year.
A custodial parent’s failure to pay child support can be a serious issue, and it is not an easy problem to resolve. If you have questions about your support payments or are struggling to catch up on the amount owed, call Davis and Associates, Attorneys at Law, LLC. Our experienced divorce & family lawyer can guide you through the complex process of settling your case and helping you recover the money that is owed.
When Both Parents Provide More than Half the Child’s Support
If both parents provide more than half of the child’s financial needs during the year, they can each take a deduction for that portion of the support. They can also claim the child as a qualifying relative for the dependency exemption.
You Can Deduct Expenses For Your Child
If you are the custodial parent of your child, you can claim an itemized deduction for expenses related to your child’s health care and education, including qualified tuition programs. This deduction is available if you paid for more than half of your child’s health insurance or medical expenses and if you had the child live with you for at least half the year.
There are several factors to consider when determining whether you can deduct these costs, so it’s important to consult with an experienced tax professional. You can also look into child-related tax credits, such as the head of household credit or the earned income credit.
When Is Child Support Taxable?
Unlike alimony and spousal support, which were once tax deductible for the person paying them and taxable for the recipient, child support is not. The IRS considers these payments to be an extension of a legal obligation to financially support your children. This is a separate obligation from your marital or civil union duties.
The amount you receive as child support is not deductible or tax-included with respect to your gross income, but it can be claimed as an itemized deduction on your tax return. The deduction is typically capped at $1,200 per month and the amount can’t exceed $2,500 for a single parent or $3,500 for a married couple filing jointly.
How Does the Court Calculate Child Support?
When the court determines how much child support to order, it uses a formula that takes into account each parent’s income and expenses. This formula will typically produce a figure that is fair and reasonable. However, it can be influenced by a variety of circumstances, including the parents’ salaries and work hours, and the age and needs of the children.