Tax Treatment Child Support
A taxpayer who makes monthly child support payments may not deduct those payments for federal income tax purposes. The duty to provide a child with the necessary financial support to cover expenses for food, clothing, lodging, education and healthcare arises from the parent-child relationship. Divorce does not terminate a parent’s duty to pay child support.
The Internal Revenue Service (IRS) treats child support payments as non-deductible family expenses. However, the taxpayer receiving child support payments does not have to report child support as income on their federal tax returns. Therefore, the taxpayer paying support is liable to pay federal income tax on their child support payments.
Tax Treatment of Alimony
For decades, the federal tax code allowed people to deduct spousal support payments from their taxable income and required those receiving alimony to report it as income. However, Congress amended the tax code in 2017 and effectively reversed the tax consequences for alimony payments. As a result, alimony payments are treated as child support payments: the payor spouse cannot deduct payments, but the receiving spouse does not have to report it as income.
Tax Exemption for Child Dependents
Although the tax code does not recognize a specific deduction or exemption for child support payments, noncustodial parents might be able to take advantage of the tax exemption for child dependents. Under the federal tax code, parents can claim their children as a dependent and receive a tax exemption. A parent qualifies for the child dependent tax exemption if they contribute to more than half of the child’s financial support for the tax year in question.
The right to claim a tax exemption for a dependent child arises by virtue of the parent’s status as the custodial parent. However, many custodial parents may not qualify for the exemption since the noncustodial parent who pays child support most likely pays for most of the child’s financial support. The custodial parent can waive their right to claim the child dependent tax exemption. Such a waiver allows the noncustodial parent to claim the child dependent tax exemption.
Consult an Experienced Attorney from the Moshtael Family Law Team
The effects of a divorce can resonate for years after the judge enters its final judgment. Alimony and child support can potentially last for decades. Therefore, it is important to know how those obligations affect your federal income tax liability. At Moshtael Law Firm, we can help you understand how your divorce affects your taxes. You can benefit from the services of our in-house Certified Public Accountant so you can get a comprehensive picture of the financial consequences of your divorce.
To schedule an appointment about your case with our team, call us at (714) 909-2561 today.