Whether you pay or receive child support, the IRS has rules you must follow at tax time. Common questions include whether you must claim the child support payments you receive as income or if you can take a deduction for payments you make. To avoid problems, the terms of your child support agreement should outline the tax implications for both parents. Like most other legal agreements, you can negotiate the terms.
Definition of Child Support
For tax purposes, child support refers to the dollar amount of the payments a divorce decree or child support agreement spells out. If you and your child’s other parent can’t work out an amount of child support payments between you, the courts will issue a child support order establishing how much money the noncustodial parent must pay the custodial parent toward the support of the child each month.
Not Taxable Income
According to IRS guidelines, the parent who receives the child support payments doesn't have to report the income or pay federal income tax on the money. That means you don’t have to include the child support payments you receive during the year on your tax return when you calculate your total gross income. Even if the noncustodial parent pays you the money on behalf of your child directly, the income isn't taxable. Your child won’t owe taxes on the money either. Then again, if the amount is included under the umbrella of alimony, the money you receive is taxable even if you use a substantial portion of it for child support.
Unlike alimony, sometimes known as spousal support, the person making the child support payments can’t take a tax deduction for the money he pays. In the event that child support payments pay for more than half of a child’s total support, the noncustodial parent may be entitled to claim the child as a dependent on his tax return. One way to avoid problems at tax time is to decide beforehand which of you will claim your child as a dependent. It's best to get it in writing in a support agreement or your final divorce decree, otherwise the custodial parent gets the exemption regardless.
Exemptions for Dependents
As a rule, the IRS sees the custodial parent as the taxpayer who pays more than half of a child’s support and therefore is the person who can take the exemption. This is the case even if the noncustodial parent actually pays more money toward a child’s total expenses for the year. Generally, for tax purposes, the parent who is primarily responsible for the child’s care gets the exemption. However, if both parents agree, the noncustodial parent can claim the exemption. You can also rotate who gets to claim the exemption from year to year as long you each provide the IRS with the required documents, including Form 8332, at tax time.
Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.