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