This question is always answered with a simple No. Child support is regarded as “tax-free” and not tax-deductible like a ton of people believe. This is because child support is considered a payment for the kid’s expenses. As a result, if you’re the Payor, they’ll be treated as if you paid them personally. The only difference is that instead of buying purchases yourself, you’re sending your ex money to meet your child’s expenditures. They are not deductible since they are considered a personal cost for tax purposes.
On the other hand, if alimony was awarded after January 1, 2019, the same is true today. Alimony given to a former spouse is also not deductible. However, if you started paying alimony prior to Jan. 1, 2019, and you were divorced by agreement or court decision, your alimony payments may be deducted; but, your former spouse must include them as income in this case.
Well, that’s the short answer in response to whether or not child support is tax-deductible. The ensuing paragraphs cover other frequently asked questions in regard to this topic.
Why Isn’t Child Support Payments Tax Deductible?
First and foremost, it is not tax-deductible to take your child to the mall to get a new pair of shoes. Child support payments are treated the same by the IRS. Regardless matter whether you or your ex take your child to the mall, the money will be spent on shoes (or something similar).
Is It Necessary for Your Ex to Declare the Money as Income?
Child support is not required to be claimed as income by your ex. Basically, your child is not required to disclose it as income, just as they are not required to report their allowance to the IRS.
Child support payments are never deductible for the payer and are never taxed for the payee, according to the IRS. Even if they identify a child as a dependent, custodial parents do not have to include child support payments in their gross income for tax purposes.
The Tax-Deductible Law Interpretation for Child Support
Section 61(a) of the Internal Revenue Code (IRC) states that gross income includes all income generated from any source except “unless otherwise provided.”
In a 2016 statement, the IRS clarified that the “as otherwise provided” clause only applies to payments for “the support of children.”
The Effects of Alimony Payments on Taxes
The IRC provides a clear distinction between alimony and child support. That’s because, unlike child support, alimony and spousal support used to be tax-deductible. Alimony payments might be deducted by the individual paying them, but the person receiving them had to include it in their total income for tax purposes.
However, beginning with divorce agreements entered into and divorce decrees issued after January 1, 2019, the Tax Cuts and Jobs Act (TCJA) removed the alimony tax deduction. Unlike many other parts of personal taxes altered by the TCJA, this provision does not expire at the end of 2025; it remains in effect until a future Congress decides to address it with additional tax revisions.
How to Report Alimony on Your 2018 Tax Return
In the 2018 tax year—the return you would have prepared in 2019—alimony was still deductible.
If you missed deducting alimony payments that year, you can correct it by filing an amended return (as long as you do so within the statute of limitations of three years). However, attempting to categorize child support payments as alimony in order to claim a deduction is a bad idea. The tax code has a recapture rule that includes specific signals that the IRS interprets as red flags. If you try to reclassify payments later, you risk activating those red lights.
On the other hand, if you can’t produce court paperwork proving that the payments were truly alimony, you’ll have to recoup those tax deductions on future tax returns.
The Deduction for Medical Expenses Is Still Available
When it comes to tax deductions, noncustodial parents aren’t completely left out. The IRS is willing to provide you with a tax benefit regarding medical expenses you pay on behalf of your children.
Even if your children don’t live with you, you can claim an itemized deduction for their medical expenses on the grounds that you paid them directly to an insurance company or healthcare provider, they lived with you or your ex for at least half the year, they’re related to you, and you and your ex paid for more than half of their support during the tax year in question.
Unfortunately, in order to take this deduction, you must itemize, which means you must forego the standard deduction for your filing status. That wouldn’t make sense until the sum of all your itemized deductions exceeds the amount of the standard deduction you’re allowed to claim in that tax year—and the standard deduction was nearly quadrupled by the TCJA. In addition, you can only deduct medical expenses that exceed 7.5 percent of your adjusted gross income (AGI).
The individual standard deduction for the 2021 tax year (taxes due in 2022) is $12,550, and $12,950 for the 2022 tax year.
But, to make itemizing worthwhile, the total of all your itemized deductions must be more than this amount. Otherwise, you’d end up paying more income taxes than necessary.
The Child Tax Credit
The Child Tax Credit is still going strong. It’s worth up to $3,600 per qualified child in the tax year 2021 for people earning up to $150,000, and it’s completely refundable according to the American Rescue Plan, which was signed into law on March 11, 2021.
Unlike the Earned Income Tax Credit, noncustodial parents can claim this credit provided the custodial parent gave them the permission to claim their child or children as dependents by completing and signing IRS Form 8332. Children of divorced, separated, or never-married parents are subject to special requirements.
Arrears in Child Support
While you cannot deduct child support payments from your taxes, any unpaid child support obligations may result in a tax refund. The Treasury Department will seize federal tax returns from persons who are overdue on their child support payments and deliver the money to custodial parents who are entitled to it.
Are There Any Other Tax Benefits?
Another common question posed by non-custodial parents who pay child support is whether or not, they are eligible for any other IRS deductions or credits.
In some cases, the non-custodial parent who is paying child support may still be able to claim other IRS deductions and credits related to their minor children. It is strongly advised that such individuals seek the advice of a certified public accountant (CPA) to review these suggestions and any others that may be relevant to their case. However, as a general rule, I suggest they consider the following typical credits and deductions:
#1. Form 8332 of the Internal Revenue Service
The basic rule is that the child can only be claimed as a dependent by the parent who has primary custody of the child. However, if the non-custodial parent has a written and signed statement from the custodial parent granting them that privilege, the non-custodial parent may claim the child as their dependent. In this situation, the custodial parent can simply sign IRS Form 8332, allowing the non-custodial parent to claim the child on their tax return. When the non-custodial parent files their tax return, they must include the signed Form 8332. This enables them to take advantage of the dependant exemption as well as the Child Tax Credit.
#2. Tax Credit for Child and Dependent Care
In any given tax year, only one parent can claim a kid (and any associated tax savings). As a result, if you are able to claim your children as dependents, you may be able to deduct the money you spend on daycare. To a large extent, if your income is below the benefit threshold, you may be eligible for the Child and Dependent Care Tax Credit. A part of appropriate childcare expenses, such as daycare, babysitters, camps, and after-school care, may provide an additional tax credit in this scenario.
Again, all clients are strongly advised to seek the advice of a certified public accountant (CPA) to determine whether any of the above-mentioned deductions and credits, as well as others (such as the earned income credit), are applicable to their particular financial situation, and to address any other tax-related concerns they may have. Knowing your total tax and financial situation gives you a better idea of how child support will affect your finances.
What Impact Does Child Support Have On My Tax Return?
Child support is “tax neutral,” which means it has no impact on your tax return. This is why:
Assume you were planning to get a new backpack for your kid. A new backpack is an example of a personal expense, so you wouldn’t deduct the cost on your tax return. Child support is handled similarly. The only difference is that you’re providing the money to your ex so they can fund your child’s bills, rather than making purchases yourself.
Is Child Support Regarded as a Source of Income?
No. Child support payments are not considered income for tax purposes if you get them from your ex. It should not be claimed as income by your child. Child support is completely tax-free and not tax-deductible.
As I earlier mentioned, alimony is the same way. If you’re getting alimony payments as a result of a divorce that ended after January 1, 2019, don’t include them in your total income. If your divorce was finalized on or before December 31, 2018, alimony should be factored into your total income calculation.
Is It Possible for Two Parents to Claim the Same Child on Their Taxes?
If you’re filing separate returns, you can only claim one child as a dependent. If you both try to claim the same child, the IRS will only accept the first return you file.
A child may be an eligible child of more than one parent in some cases. The issue is, you can only declare one of you as eligible when it comes to collecting certain tax benefits. Among the advantages are:
- Filing status as the head of household
- The EITC (Earned Income Tax Credit)
- Child Tax Credit, Additional Child Tax Credit, or Credit for Dependents Other Than Children
- Credit for Child and Dependent Care
What Should I Do if My Ex-husband Declared Our Child as a Dependent on Their Tax Return?
Let’s imagine you’re using a couple of popular tax platforms out there to file your taxes online and you declare your child as a dependent, the IRS will most likely reject your return if your ex filed and claimed them first (because you filed second).
This does not preclude you from claiming your child. At this point, you must mail your tax return to the IRS. Ordinarily, to determine who has the right to claim the dependant, they will use tiebreaker criteria. But, because the IRS can’t use tiebreaker rules on electronically filed returns, you’ll have to mail yours in.
Who Has the Right to Claim a Child as a Dependent on Their Taxes?
The individual with primary custody is usually the one who claims them on their tax returns. If you and your ex split custody evenly, the parent with the greater AGI can claim the child as a dependent.
Is It Possible for a Non-custodial Parent to Declare a Child on Their Tax Return?
The non-custodial parent should only claim the child as a dependency if the custodial parent has signed a written declaration granting them that right. You can sign an IRS Form 8332 if you are the custodial parent, allowing your ex to claim your child on their tax return.
When they file their return, they must include the statement or the signed Form 8332. This enables them to take advantage of the dependant exemption as well as the Child Tax Credit. A non-custodial parent cannot claim the Earned Income Tax Credit for that child, even if they have the authorization to do so.