Child Support And Taxes
As a non-custodial parent, if you are obligated to pay child support, you may have to transfer a fixed amount every month or have it deducted from your monthly paycheck. Many people assume that this would be a tax deductible expense which would provide them at least some benefit in the form of tax relief.
However, this is not the case. According to the IRS, when you financially support your children either directly or through child support, you cannot claim a tax deduction for it. However, if you happen to spend money for the child’s medical costs, it could be treated as tax deductible expense in some situations.
For the custodial spouse, who is receiving the child support payments on behalf of the child, will not count this payment as his or her income. Therefore, child support payments are not taxable either.
Why no Tax Deduction is given to the Paying Parent?
While the recipient parent pays no tax on the child support parents, many non-custodial parents wonder why they should not be eligible to claim a tax deduction on this expense. The rationale of the IRS is that if your child was living with you, and you were going to pay for his or her everyday expenses (such as buying them a new video game), you would not even think of claiming a tax deduction for this expense.
Similarly, when you make child support payments every month to the custodial parent, you are effectively paying your share for the child’s everyday expenses and upbringing costs. The other parent is not the ultimate beneficiary of that payment, but will use it towards supporting the daily needs of the child.
Tax Deduction for Medical Expenses
Although child support is considered as a tax neutral event, the child’s medical expenses are not. If you are paying for your child’s medical costs as a non-custodial parent, you are eligible for an itemized tax deduction. The pre-requisites to be fulfilled are:
- You paid the medical expense personally to a doctor or to an insurance provider
- The child lived with you or with the co-parent for at least six months, the child is related to you, and you and the co-parent paid for at least 50 percent of their support amount during the tax year.
You are required to itemize this deduction in order to claim it, which means you will have to forgo the standard deduction for your tax filing status. Now this may only be beneficial for you if the total amount of all your itemized tax deductions is higher than the standard deduction you are otherwise entitled to claim.
Payment of Child Support Arrears
If arrears have accumulated on your child support obligations, the taxation comes into play in some cases. If you are awaiting federal tax refunds, the Treasury Department will intercept the refund amount, and use some part or all of it to pay the custodial parent who has claimed non-payment of child support from you.
The government’s Treasury Offset Program has the authority to use your tax refund payments to pay off California child support agency in such case. Thereafter, the agency will ensure that these intercepted funds are transferred to the custodial parent.
It is important to ensure that your child support order at the time of your divorce in California clearly identifies the nature of these payments you will be making to the co-parent. A knowledgeable Orange County child support lawyer will make sure that your child support order has used the precise qualifying language so that the IRS does not find the language to be unclear now or in the future.
This is important because tax regulations keep changing, and you should not lose out any tax benefit that may arise in future with regard to your child support obligations.
Consult with an Accomplished Child Support Lawyer
Tax implications of your settlement agreement in an Orange County divorce can make a key difference to your finances. If you are going through a high net worth divorce, it becomes even more important to do careful tax planning for various family law-related issues.
Hire the services of a resourceful child support attorney in Orange County who help you obtain the best tax guidance as well as vigorously protect your interests in all divorce and family law matters.