How does child support affect taxes

How Child Support Affects Your Taxes

How Child Support Affects Your Taxes | Andalman & Flynn Law Firm

By Nelson Garcia, 301.563.6685

People often ask me how does child support affect their taxes, with the most common specific questions being the following:

Is Child Support Tax Deductible or Taxable?

The answer to this question is always simply No. Child support is considered “tax neutral.” That’s because child support is considered payments for expenses of the child. As such, if you are the Payor they are treated the same as if you had paid them yourself. The only difference is that, instead of making purchases yourself, you’re giving them money to your ex so they can cover expenses for your child. They are considered a personal expense for tax purposes, so they are not deductible.

The same is true for alimony today if it was awarded after January 1, 2019. If so, one cannot deduct alimony paid to a former spouse. But if you started paying alimony by either agreement with your former spouse or court decree and you were divorced prior to Jan. 1, 2019, then your alimony payments can be deducted; also, in such an event, they must be included as income by your former spouse.

Are Any Other Tax Benefits Available?

Another typical question asked by non-custodial parents paying child support is whether there are any other IRS deductions or credits available to them?

There are certain situations where the non-custodial parent paying child support may still be able to take advantage of other IRS deductions and credits related to their minor children. It is very strongly recommended for such clients to consult a certified public accountant (CPA) to analyze these suggestions and to cover any others that may be applicable to their specific situation. But as a general rule of thumb I advise them of the following common possible credits and deductions:

IRS Form 8332. The general rule is that only the parent with primary custody of the child can claim the child as their dependent. However, the non-custodial parent may claim the child as their dependent if there is a written and signed statement by the custodial parent giving them that right. In such a case, the custodial parent can just sign an IRS Form 8332, which will allow the non-custodial parent to claim the child on their tax return. The non-custodial parent then attaches the signed Form 8332 when they file their return. This allows them to claim the dependent exemption and the Child Tax Credit.

Child and Dependent Care Tax Credit. Note that only one parent can claim a child (and any accompanying tax breaks) in any one tax year. Therefore, if it does turn out that you can claim your kids as dependents, then the money you pay for childcare may also be deducted. Such would include Child and Dependent Care Tax Credit if your income is below the benefit threshold. In this case, some portion of relevant childcare expenses, such as daycare, babysitters, camps, and after school care, may provide an additional tax break.

Again, all clients are very strongly recommended to consult a certified public accountant (CPA) to confirm if any of the above-described deductions and credits, as well as any others (such as the earned income credit), are applicable to your specific financial situation, and to clear up any other tax-related concerns you may have. Knowing your overall tax and financial status, enables you to have a clearer picture of how child support will impact your bottom line.

One of the most rewarding aspects of being a Family Law Attorney is educating my clients about how to best present their case, whether for settlement or trial. But although the contested custody process can be tough, it doesn’t always have to involve stressful, expensive litigation and the overwhelming majority of my custody cases settle. Whether children are minors or adults, children benefit when their parents can settle their differences.

I know how complex and sensitive matters involving divorce and children can be. If you have questions or need compassionate legal guidance about a child custody matter, please contact me today.

About Andalman & Flynn, P.C.: Founded in 1998 in downtown Silver Spring, Maryland, Andalman & Flynn has forged a distinguished reputation for legal excellence. The firm represents individuals seeking disability benefits throughout the country and practices family law throughout Maryland and the District of Columbia. The firm focuses on cases that impact the rights of everyone, and are there for clients when responsive legal help is most critical. The firm has provided legal analysis on national and local television and radio, and their attorneys often testify before legislative bodies and are routinely invited to contribute to prominent legal publications. For more information about Andalman & Flynn, please visit the website at andalmanflynn.com or call 301.563.6685

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Tax Rules for Child Support

Learn more about how the Internal Revenue Service handles child support payments.

If you're going through a divorce—or if you're separating from your partner—and you have children, you may have questions about child support and taxes. The Internal Revenue Service (IRS) governs what can be taxed, and the general rule is: child support is not tax-deductible.

Although tax laws can be complicated and seem intimidating, knowing some of the rules can give you a leg-up during settlement negotiations or at least a heads-up to how your federal tax responsibilities may change when you end your relationship.

What Is Child Support?

Child support is a court-ordered payment that one parent (usually the non-custodial parent) pays to the other. Regardless of your marital status, both parents have an ongoing legal obligation to support their children. The right to receive child support belongs to the child and the purpose of child support is to cover the child's daily expenses, such as rent, clothing, and food.

Determining the amount of support

Typically, states use a standard formula to calculate child support. However, each state's rules vary, so it's important to discuss your state's guidelines and requirements with an experienced attorney.

The first step is for both parents to submit documentation to the court, which proves their income. It's a common misconception that a parent can quit a job or find a lower-paying job to avoid paying child support.

If the court believes either parent is unemployed or underemployed, the court can impute income—meaning, the court will use the income that reflects what a parent should or could be earning in the current job market.

For example, if a custodial mother has a nursing degree and a valid nursing license, but chooses to work as a cashier at the local grocery store, the court may impute her income to reflect the amount she should be earning by working in the medical field. How the court proceeds with imputing income varies by each state.

Judges do not usually deviate from the amount the calculator produces. However, if you have extenuating circumstances, the law allows judges to order more or less support. For example, in Michigan, a judge can deviate from the formula if the paying parent regularly earns bonuses, if one parent is incarcerated, or if the child has special needs.

Can Parents Deduct Child Support Payments?

No. The IRS does not permit paying parents to deduct child support payments. Either parent, however, may qualify for a dependency exemption per child. Parents can agree to who gets the exemption, but if you can't decide, the court will lay out the rules in the court order.

Generally, if the parents can't come up with a plan on their own that allows each parent to take fair advantage of the tax exemptions for dependent children, the court will create a reasonable schedule based on each parent's proportional share of the total income available to support the child (or children).

For example, let's say the custodial parent makes $33,000 a year, and the non-custodial parent makes $67,000. Proportionally, the custodial parent provides 1/3 of the total amount of income ($100,000), and the non-custodial parent provides the remaining 2/3. If there were only one child, then the custodial parent could take the deduction the first year, and the non-custodial parent could take the deduction for the next two years. Parents would typically continue with that pattern until the child no longer qualifies for the exemption.

There are some exceptions to the tax exemption, however. If the parent with a present right to take a dependency exemption gets no tax benefit from claiming the exemption, then the other parent can take it. Also, if a parent has a history of missing child support payments, then a court could take away this dead-beat parent's right to claim the dependency exemption.

You can learn more about the dependent tax exemption by reading Publication 504 on the IRS website. It's important that you read and understand what the court ordered for your case before you file your taxes each year.

Do I Have to Report Child Support Payments as Income?

No. Child support does not count toward the receiving parent's taxable gross income. So, when you file your annual taxes, don't include your child support payments when reporting your annual income.

Child Support Arrears and Taxes

Whether you and your ex-partner negotiated support, or the court ordered it for you, both of you must obey the order. Parents who fail to make the proper court-ordered payments are in contempt of court, regardless of the reason for non-payment. When a parent fails to pay, the court begins tallying the missed payments and categorize them as "arrears," and once that happens, the court can begin enforcement procedures to recover the payments.

When you miss your child support payments, the custodial parent can request help from the court to enforce your child support order. If the court gets involved, a judge may order delinquent parents to attend a court hearing (often called a show-cause hearing) to explain why they aren't paying.

Delinquent parents may face a variety of enforcement tools, including wage and bank account garnishment, suspended driver's and professional licenses, loss of a passport, and possibly a sentence in jail.

Additionally, the court can (and will) intercept your state and federal tax refunds to cover late or missed child support payments.

If you're having trouble making child support payments, you can ask the court to modify your order. However, it's important to understand that in most cases, you'll need to demonstrate a material change in circumstances to qualify for a review.

Child support modifications are not retroactive, which means the new amount only applies to future payments, and noncustodial parents are still responsible for any arrearages. To prevent arrearages, you should request a modification as soon as circumstances change.

If you need to modify or terminate your child support order, contact a family law attorney near you for assistance.

Resources

Learn more about important tax issues in our section on Tax Issues in a Divorce.

from which investment income you need to pay child support

I pay child support for my minor child. I invest part of my income. Do I have to pay alimony from the following income:

From the tax deduction from the use of IIS?
From dividends on shares that I receive on IIS and reinvest?
From income from trading in shares?
Interest on bank deposits?
From bond coupons?

Thank you.

Oleg M.

Oleg, the regulations do not give an unequivocal answer to most of your questions, and there are no clarifications binding on the courts either. I will tell you which positions are most reasonable, but you need to keep in mind that in each specific case, the court may decide otherwise.

Stanislav Egorkin

lawyer

The list of income from which child support is withheld is approved by the Government of the Russian Federation. The Constitutional Court of the Russian Federation and the courts of appeal of general jurisdiction will help interpret its provisions. The positions of the latter are not obligatory for courts when considering similar cases, although, as a rule, they are taken into account.

Alimony from tax deductions for IIS must be paid

According to paragraph 4 of the list, alimony is collected from income after taxes are withheld from it in accordance with tax legislation.

Tax deduction reduces the tax base for personal income tax. As a result, the income from which alimony is withheld increases. Accordingly, alimony must be paid from the tax deduction received.

For example, your salary is 50,000 R per month, and you have one minor child, for whose maintenance you pay alimony. Every month, the employer deducts 13% of personal income tax from your salary. Every month you receive 43,500 R in your hands, of which 10,875 R - 1/4 of your income - you pay as alimony.

100,000 R you deposited on IIS in the same year - and next year the tax authority will return to you a part of the personal income tax withheld in the amount of 13,000 R. As a result, the salary for the previous year, which is calculated after the withholding of personal income tax, will increase by these 13,000 R. Therefore, 1/4 of this amount, that is, 3250 R, will have to be paid as alimony.

Art. 210, 220 NK RF

The Moscow City Court adheres to this position. Recently, it was supported by the Second Court of Cassation of General Jurisdiction, so in Moscow and a number of neighboring regions, the courts are likely to follow it.

Appeal ruling of the Moscow City Court dated December 2, 2019 in case No. 33а-8355/2019PDF, 182 KB

The situation is different in other regions. For example, the Chelyabinsk Regional Court and the Primorsky Regional Court independently came to the opposite conclusion four years ago: both courts pointed out that tax deductions, according to the list, do not constitute income, and therefore alimony is not withheld from them. Although these positions, in my opinion, are based on a misinterpretation of the law, they can be invoked if the case is heard outside of Moscow and the regions closest to it.

Appeal ruling of the Chelyabinsk Regional Court dated November 17, 2015 in case No. 11f-14277/2015PDF, 166 KB pay

Dividends are expressly indicated in the list of income from which alimony is withheld. At the same time, it does not matter where they are credited: to the IIS, to a regular brokerage account or immediately to a bank account. Even if dividends are credited to IIA and reinvested, this does not cancel the fact of receiving income from which alimony must be paid. The excuse that it is impossible to withdraw money from the IIA without closing it will not help here: the alimony calculated from the dividends can be paid at the expense of other available money.

sign. "k" Clause 2 of the list of types of wages and other income from which alimony for minor children is withheld

Tax deductions do not apply to dividends. They are subject to personal income tax in the general manner and are credited to the IIS or bank account after the tax has been deducted. Consequently, alimony is calculated from dividends immediately after they are received.

Letter of the Russian Ministry of Finance No. 03-04-05/21361 dated April 3, 2018

Alimony from income from investments in shares is not required to be paid

The list of income from which alimony is withheld includes income received under agreements concluded in accordance with civil law.

This rather vague wording was interpreted back in 2012 by the Constitutional Court of the Russian Federation: alimony must be withheld only from income under civil law contracts that a person enters into in order to exercise the right to freely use one’s abilities and property for economic activities not prohibited by law, as well as the right to work.

Ruling of the Constitutional Court of the Russian Federation dated January 17, 2012 No. 122-О-О

This means that alimony must be paid only if you have made stock trading a permanent source of your income. For example, if you are a trader. If you make one-time transactions with shares, you do not need to pay alimony from the received profit.

Ruling of the Primorsky Regional Court dated June 25, 2015 in case No. 33-5265/2015PDF, 164 KB0003

This position found support in the decisions of the Primorsky Regional Court.

With alimony from interest on bank deposits, the situation is disputable

The position of the Constitutional Court of the Russian Federation mentioned above can also be applied to interest on bank deposits. The receipt of income in this case is not related to the realization of the investor's right to freely use his abilities or the right to work. Therefore, it is logical to come to the conclusion that it is not necessary to pay alimony from interest on a bank deposit.

However, in the few decisions on this issue, the courts come to the opposite conclusion. For example, the Supreme Court of the Republic of Tatarstan considered that, under the current legislation, it is possible to withhold alimony from the debtor's income from placing money in banks and other credit institutions. The Moscow City Court came to a similar conclusion.

Appeal ruling of the Supreme Court of the Republic of Tatarstan dated 06/04/2015 in case No. 33-7929/15PDF, 163 KB24PDF, 169 KB

In general, the jurisprudence on this issue has not yet been formed. If you end up in court, then with reference to the ruling of the Constitutional Court of the Russian Federation, you can defend the position that alimony is not paid from interest on bank deposits.

No need to pay alimony on bond coupons

Bond coupons are not mentioned in the list of income from which alimony is withheld - and there is no reason to classify them in any of the categories that are mentioned in this list. Therefore, it is not necessary to pay alimony from coupons.

There are no court decisions on this issue yet.

What is the result

Alimony is paid from the following income: property tax deductions on IIA, dividends, including those reinvested in IIA, profits from trading, if this is your regular source of income.

No need to pay alimony on investment income from the sale of shares and on bond coupons. It is rather not necessary from interest on bank deposits, but the court may decide otherwise.

/alimony/

How to calculate and pay child support

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Maintenance allowance | Sotsiaalkindlustusamet

We pay maintenance assistance during enforcement proceedings to the child if the parent who is obliged to pay maintenance does not do this, although the maintenance was collected from him by a court decision or the parents entered into an agreement on the payment of maintenance with a notary or family mediator.

A minor child or an adult child under the age of 21 is entitled to a maintenance allowance if he or she is studying.
For a minor child, an application for maintenance assistance is submitted by his legal representative. The legal representative may be a parent or guardian of the child, including a legal entity. An adult child can apply independently.

How much

The amount of maintenance allowance during enforcement proceedings is up to 100 euros per calendar month for one obligated parent.

Example 1. If the monthly maintenance amount collected from the debtor by a court decision is 215 euros, the maximum allowance for one month is 100 euros.
Example 2. If the monthly alimony collected from the debtor by a court decision is 80 euros, the maximum amount of maintenance allowance for one month is 80 euros.

How to apply?

If you want to apply for a maintenance allowance during enforcement proceedings, the first thing to do is to file a maintenance claim with court (information about applying to the court can be found here and here). If a court decision has entered into force or a notary agreement or a family reconciliation agreement has been concluded and the other parent does not pay support, contact a bailiff and initiate enforcement proceedings (contact details of the bailiffs' bureau can be found here).

You can also submit an application for a maintenance allowance to the bailiff along with an application for initiation of enforcement proceedings. The application form can be found on the website of the Chamber of Executors and Bankruptcy Managers. The data required for the payment of maintenance allowance during enforcement proceedings are sent to us by the bailiff on a monthly basis.

The prerequisite for receiving maintenance allowance during enforcement proceedings is that the enforcement proceedings last one full month. If, after a 1-month waiting period, the parent obliged to pay maintenance has not liquidated the debt to the child, the bailiff begins to take into account the circumstances whether the child receives maintenance monthly, and if so, in what amount.

If the child does not receive child support in the month following the 1-month waiting period, we will start paying child support up to 100 euros per calendar month. If a smaller amount of alimony was collected by a court decision, then the basis for payment is the amount indicated in the court decision. We make payments of maintenance assistance retroactively for the previous month, no later than the 10th day of the next month.

Example 1 . The applicant initiates enforcement proceedings in the maintenance case on June 20 and at the same time also submits an application for maintenance assistance during the enforcement proceedings. The settlement period for the calculation of alimony begins on August 1. If child support is not received in August, the Social Insurance Board will pay child support by September 10 at the latest.
Example 2. Enforcement proceedings in the child support case have been going on since 2016, that is, at least the required 1 month. The applicant submits an application for maintenance allowance during the enforcement proceedings on 5 January 2017. The calculation period for the calculation of alimony starts on February 1, and if, between February 1 and February 28, no child support is received or less than 100 euros of support is received, or less than the amount collected by the court order, we will pay maintenance allowance for February no later than March 10.
Example 3. The applicant initiates enforcement proceedings in the maintenance case on April 20 and at the same time also submits an application for maintenance assistance during the enforcement proceedings. At the time of application, a 4-month waiting period was required. By July 1, 2 months had passed since the start of enforcement proceedings. Therefore, the settlement period for maintenance assistance is from July 1 to July 31. Alimony assistance can be paid no later than August 10.

Maintenance allowance during enforcement proceedings can also be applied for from both parents if the applicant is a guardian. In such a situation, enforcement proceedings should be initiated against both parents, as well as an application for maintenance assistance from both parents should be filed. If you apply for maintenance allowance from both parents, you can receive maintenance allowance in the amount of up to 200 euros per month per child.

Please note! When calculating the amount of maintenance allowance, all amounts received as alimony (including amounts paid as a substitute obligation, for example, from the child's grandparents) are taken into account.