Child Support and Taxes FAQ
What you need to know about your taxes if you pay or receive child support.
Is child support tax-deductible?
For federal income tax purposes, child support is tax-free to the recipient, meaning the ex-spouse or the child does not owe taxes on it. However, payments of child support are not tax-deductible by the parent who makes the payments.What kind of payments qualify as child support for tax purposes?
In order to qualify as child support, the amounts an ex-spouse receives must be designated as child support in the divorce or separation agreement. If the agreement lumps the payments together as “family support” or "alimony," or doesn’t otherwise designate a specific portion of each payment as child support, none of the payment will be considered child support for tax purposes. This can have adverse tax consequences for the recipient, because family support or alimony is taxable to the recipient. So instead of receiving nontaxable child support, according to the IRS the ex-spouse will be receiving alimony, which is taxable to the payee regardless of what the payee actually uses the money for.I have custody of my two children, but my ex pays child support. Which of us can claim the children as dependents on our tax returns?
Generally, in order for someone to claim a child as a dependent, he or she must provide at least 50% of the child’s support during the tax year. For couples who are still married and living together, claiming kids as dependents is usually a slam-dunk.
Things get complicated, however, when parents divorce or separate. Now, only one of you can claim the dependent exemption. (The IRS will come down hard if both of you try to claim it; they cross-reference dependents' Social Security numbers to make sure taxpayers aren’t doing this.)
If the parents have a written divorce decree, maintenance agreement or separation agreement, or if the parents lived apart at all times during the last six months of the calendar year, there is a special rule that applies.
In this case, if the child received more than half of his or her total support for the year from one or both parents and was in the custody of one or both parents during the year, the IRS rules assume that the custodial parent (defined as the parent who has custody of the child for the greater part of the year) should get the exemption. However, the parties may change this presumption and allocate the exemption to the noncustodial parent if either of the following are true:
- The divorce decree or separation agreement contains a provision in which the custodial parent waives the right to claim the exemption. (The rules are slightly different if the agreement was entered into prior to 1985; the noncustodial parent must also provide at least $600 of support to receive the exemption.)
- The custodial parent signs a declaration (using IRS Form 8332) relinquishing his or her right to claim the exemption, and the noncustodial parent attaches this declaration to his or her tax return. Using this form, the custodial parent can relinquish the exemption for one year, a number of years, or forever, depending on what the parties agree to. (If you relinquish the exemption, you are also relinquishing eligibility for the child tax credit.)
The IRS is very picky about Form 8332, and can (and often does) disallow the exemption for the noncustodial parent if this form isn’t signed and attached to the tax return, even if the divorce decree or separation agreement allocates the exemption to the noncustodial parent. That means it’s very important for the noncustodial parent to attach a copy of this declaration to his or her return in every tax year in which he or she claims the exemption.
If the custodial parent refuses to sign Form 8332, the noncustodial parent can attach part of the divorce decree or separation agreement (the cover page, the page that discusses the exemption and the signature page) to his or her tax return to prove that he or she is entitled to the exemption. However, the IRS will accept this only if the decree or agreement doesn’t require that certain conditions be met before the noncustodial parent can claim the exemption. If there are conditions, the noncustodial parent must use Form 8332 or not get the exemption.
If the parents do not have a written document, did not live apart during the last six months of the calendar year, or are not married, the test for determining which parent can claim the child as a dependent is that the parent who provides more than 50% of a child’s support during the tax year can claim the child as a dependent.
If neither parent provides more than half of the child’s support for the year, things get even more complicated. For more information on how to handle this situation, see IRS Publication 504, Divorced or Separated Individuals, which you can download for free from www.irs.gov.My ex-husband wants to increase the amount of alimony and decrease the amount of child support (but still pay the same amount of money each month) for tax reasons. How would this affect my taxes?
For federal income tax purposes, child support is tax-free to the recipient but not tax-deductible by the payor. In contrast, alimony payments are taxable to the recipient and tax-deductible by the payor. That means it’s often to the payor’s advantage to pay more alimony and less child support, even if the total monthly payment is the same.
However, for you, it will not be more beneficial -- you’ll have to pay taxes on the “extra” alimony, while you wouldn’t have had to pay taxes on that money if it qualified as child support. Think of it this way: decreasing your ex-husband’s tax burden might actually increase yours, so run some numbers with an experienced divorce attorney or accountant before you agree to this. (Note: If you receive any partial payments that constitute both child support and alimony, the IRS rules allocate the money first to child support and then to alimony.)
Additionally, even if you and your ex agree to structure his payments to minimize his tax burden, child support payments are often set by state-imposed guidelines and formulas, which are less flexible than they were in the past. This means it’s more difficult to adjust the numbers up and down to meet your or your ex’s tax needs.
For instance, California uses a complicated mathematical formula (which you can find in California Family Code § 4055) to determine the required amount of child support. However, a court can enter a child support order that deviates from this amount if there’s a good reason.