Child Support and Taxes

Taxes can be reduced by allowed deductions and exemptions. Deductions reduce the amount of taxable income, and exemptions reduce the adjusted gross income, such as standard withholding or dependency exemptions. If you pay child support or receive it, the Internal Revenue Service (IRS) has a strict set of rules in place to control the deductions and exemptions that you are allowed because of the payment or receipt of child support. Often, the terms of your divorce decree and related agreements will control the extent to which any tax offsets are available. For that reason, it is very important to consult an experienced family law attorney at Law Office of Heather Cullen, A Professional Corporation in Riverside regarding the long term tax implications of the child support arrangements reached in your case.

Child Support: A Nontaxable Event

Child support payments are not taxable. That means the parent making the payments cannot deduct them from income and their receipt is tax free to the parent who gets the payments on behalf of their children. To meet the definition of child support payments, the payments must be so designated in a divorce or separation agreement. “Family support” payments will be treated like alimony and taxed as income to the recipient unless the agreement under which they are paid specifically designates a portion or amount as child support.

Child Support and Dependency

Even though the payment and receipt of child support does not create a tax event in and of itself, there is an important tax consequence related to child support payments: who gets to claim the children as dependents in order to receive the dependency exemption?

The IRS says that you must provide more than half of a person’s total support in a calendar year to claim an exemption based upon dependency. In order to resolve dependency questions about the payment of child support, the IRS has created a special rule that controls the circumstances of how and when the payment of support creates an exemption. The rule applies when:

The parents are divorced or legally separated under a decree of divorce or separate maintenance; separated under a written separation agreement; or living apart at all times during the last 6 months of the calendar year
One or both parents provide more than half the child’s total support for the year
One or both parents have custody of the child for more than half the calendar year

The rules do not apply if support is determined under a multiple support agreement or the child’s parents never married.

The special rule states that the parent who has custody the greater part of the year is the custodial parent and that parent will be treated as the person who has provided more than half of the child’s support. Unless the parties otherwise agree, the custodial parent will be entitled to claim the tax exemption for the child if the other dependency criteria are met. The actual number of days the child spends with a parent will determine the definition of custodial parent where custody is split or where legal proceedings make custody status unclear during any tax year.

The rule allows the non-custodial parent to be treated as the parent who has provided more than half of the child’s support for dependency purposes if the parties agree to that. In order to claim the exemption, the non-custodial parent must have either:

A written declaration signed by the custodial parent stating that he or she will not claim the child as a dependent
A signed decree or agreement executed after 1984 that states the custodial parent will not claim the exemption for the tax year and the non-custodial parent attached the appropriate documentation to his or her return
A signed decree or agreement executed before 1985 that provides for the non-custodial parent to claim the exemption along with a statement that at least $600 was in fact given in support to the child, unless there is a modification to the pre-1985 agreement that says that provision doesn’t apply

Non-custodial parents must attach the appropriate agreement or written declaration to their taxes. The written declaration must be made in a format that follows a particular form.

Conclusion

Tax issues concerning support payments and dependency status can be complex. An attorney experienced in these areas can be an invaluable asset. Contact Law Office of Heather Cullen, A Professional Corporation in Riverside, CA for more information today.

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

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Child Support Practice Center