How to deduct child support from 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.

Are alimony payable with personal income tax

Contents

Is a tax imposed on alimony
Sequence of withholding tax and alimony
A step-by-step guide to collecting alimony

900 has several forms of payment of alimony. This may be a specific amount of a permanent nature, or a share of the total income of a person who is obliged to pay them.

If we consider the second option, you should pay attention to how alimony is withheld - before or after personal income tax.

Is alimony taxed? According to

5, paragraph 217 of Article of the Tax Code, maintenance payments of any purpose are not subject to taxation. Forfeits paid by the alimony payer due to late payments are also inviolable in terms of tax deductions.

Understanding why alimony is not subject to personal income tax will help determine the essence of these funds. Funds intended for the maintenance of a child are not considered income. Alimony is a method that distributes money intended to provide for a common child between spouses. Tax deductions are collected from the alimony payer when he receives income.

The sequence of withholding tax and alimony

It remains to find out whether alimony is withheld after the deduction of personal income tax or before it is withheld. The answer can be found in Federal Law No. 229 "On Enforcement Proceedings" . According to this provision, alimony is deducted from the employee's salary after personal income tax is withheld. This is due to the fact that the money for the maintenance of the child is taken directly from the income of the one who must make such payments. The tax, which is characterized as replenishment of the state treasury, does not apply to income. If you calculate maintenance payments before it is deducted, then this will be considered a violation of the rights of the payer.

If we talk about the application of the theoretical base enshrined in the Federal Law in practice, then initially the due 13% of income tax is deducted from the salary of the alimony payer. Only then, from the remaining amount, the amount of funds intended for the maintenance of the child is calculated. The amount of the payment depends on the number of children:

One - 25% of income.
Two - a third of the income.
Three or more - 50% of funds received.

The amount intended for the payment of alimony should not exceed 70% of the payer's income.

Step-by-step guide to collecting child support

The process of withholding child support payments corresponds to the following stages:

Important information

There are several ways to pay child support - in cash, through a bank or mail, and through the accounting department of the enterprise where the defendant works. It is only important that the transfers are recorded - then in the event of a dispute, the latter will have proof of payment. Read more in this article

Determining the employee's earnings for the month worked. This includes salary, bonuses, allowances and other funds due to him.
Withholding all required taxes, including personal income tax.
Implementation of the requirements of executive documents for which alimony is withheld from the amount received.
Transfer of alimony to the recipient. The costs of their transfer are intended to be paid by the payer.

After reviewing the process of withholding funds step by step, you can understand that initially the tax is collected from the payer and only then the alimony is deducted from the salary. The fact of the initial payment of tax by the payer indicates that alimony is not subject to personal income tax.

If the amount intended for the payment of alimony has a fixed rate, then the procedure for deducting funds in favor of the state and the recipient of the alimony does not matter. Personal income tax in this case can be deducted both before and after the deduction of funds for the maintenance of the child.

Something unclear? Ask a question and get a comment from a specialist

How is the amount of alimony determined? | Juristaitab

From now on, the living wage is separated from the so-called minimum wage, which until now raised the living wage every year. HUGO lawyer Vahur Kõlvart explains the nature of the new system below.

In the future, minimum child support will have five different components.

A base amount of at least 200 euros per child, indexed annually to the previous year's consumer price index (which will be officially published by Statistics Estonia on 1 April). After indexation, the base amount resulting from indexation in the previous year is considered the base amount for the next year.

3% of the average monthly gross salary in the country for the previous year is added (which is also officially published by Statistics Estonia on 1 April).

Number of children supported in one family - in this case, the amount of maintenance for subsequent children is reduced by 15 percent compared to the amount of maintenance for the first child. The amount of maintenance is not reduced in the case of twins/twins and in the case of children with a difference in age of more than three years.

Family allowances - in comparison with the past, the law clearly states that the parent is not obliged to support the child to the extent that the needs of the child can be met from the child allowance and the allowance for a large family. If the benefit claimant receives these benefits, half of the benefit is deducted from the allowance for each child. However, if the recipient of the benefit is a payer, this amount is added to the alimony.

Child living together - if the child lives with the parent who pays support, on average at least 7 days per month per year, the amount of support is reduced in proportion to the time spent with the obliging parent. Therefore, if the child lives equally with both parents, maintenance can only be collected if this is due to the greater needs of the child, a significant difference in the income of the parents, or an uneven distribution of expenses related to the child between the parents.

Example:

The child lives with the mother, stays with the father for an average of 10 days per month, and a child allowance of 60 euros is paid to the child's mother's bank account.