Parents want to provide the best for their children, but often don’t know if child support is taxable.
It can be hard to figure out what’s considered taxable income and what’s not, especially when it comes to child support.
We’ve got you covered. Our tax experts have compiled a list of everything you need to know about child support and taxes. You’ll learn how much of your child support payments are taxable, what deductions you can claim, and more.
Is child support payment taxable? Child support payments are not taxable. Child support payments are not deductible by the payer and are neither taxable income to the recipient.
The child of a parent who receives child support may be eligible for dependency exemptions.
Is Child Support Payment Taxable?
Child support is a court-ordered payment made by one parent (usually the non-custodial parent) to the other. Both parents are required by law to maintain their children. The right to child support is vested in the kid, and the goal of child support is to cover the child’s basic needs, such as rent, clothing,
Child support payments are not deductible by the payer and are not taxable to the recipient. When you calculate your gross income to see if you need to submit a tax return, do not include child support payments received.
Child support payments are deductible by the payer and taxable to the recipient if they’re made in connection with a divorce or separation instrument that was signed on or before December 31, 2018. When calculating your gross income to see whether you need to submit a tax return, include payment received under such an arrangement.
However, if the modification expressly states that the repeal of the child support payment deduction applies to it, alimony payments are not deductible by the payer nor taxable to the recipient if they are made under divorce or separation instruments executed after December 31, 2018, and under certain instruments executed on or before December 31, 2018, but subsequently modified.
Don’t count child support payments received under a written instrument when calculating your gross income to determine if you need to submit a tax return.
Calculating Taxes On Child Support Payment
Child support payments are not deductible by the payer and are not taxable to the recipient. When you calculate your gross income to see if you need to submit a tax return, do not include child support payments received.
The IRS does not allow parents to deduct child support payments. Per kid, one parent can qualify for a dependency exemption, but only one of the parents may receive it. The court will set out the conditions in the court order if you can’t agree on who gets the exemption.
If the parents are unable to devise an arrangement on their own that permits each parent to take full advantage of dependent child tax exemptions, the court will devise a fair plan based on each parent’s proportional allotment of the overall income available to support the kid (or children).
For example, let’s assume the custodial parent makes $33,000 per year and the non-custodial parent earns $67,000. The proportion of income provided by the custodial parent is 1/3 (or $100,000), while the non-custodial partner contributes 2/3. If a single child were involved, the custodial parent could claim the deduction in year one and the non-custodial parent may do so for two additional years. Until the kid no longer qualifies for the exemption, they would usually continue on that track.
There are several exceptions to the tax benefit, however. If a parent with a current right to claim the dependency exemption does not get any tax advantages from doing so, the other parent may take it. Additionally, if a parent has a track record of failing to pay child support, the court could remove this deadbeat parent’s right to claim the dependency.
How To File Child Support Payments On Your Federal Taxes?
Child support does not count toward the receiving parent’s taxable gross income. As a result, do not include your child support payments when calculating your yearly income.
State Taxes On Child Support Payment
Typically, states use a common formula to calculate child support. However, each state’s regulations are different, so it’s critical to consult an attorney who is knowledgeable about your state’s laws and requirements.
The first step is for both parents to submit paperwork to the court, which demonstrates their income. It’s a widespread misconception that a parent can quit working or find a lower-paying job in order to reduce child support payments.
If the court determines that either parent is unemployed or underemployed, it may impute income—that is, the court will use the income that corresponds to what a parent should or could be earning in today’s job market.
For example, if a custodial mother has a nursing degree and a valid nursing license, but works as a cashier at the local grocery store instead of in healthcare, the court may infer her earnings to represent what she would earn working in the medical field. The method used by the court to impute income varies from state to state.
Judges are unlikely to deviate from the amount calculated by a calculator. However, if you have exceptional circumstances, the law allows judges to order more or less assistance. For example, in Michigan, a court may depart from the formula if one parent is unemployed and regularly receives bonuses, one parent is imprisoned, or the kid has special needs.
Conclusion
The IRS has made it clear that child support payments are not deductible by the payer and they’re neither taxable income to the recipient. A parent may be eligible for dependency exemptions if their children live with them for at least half of the year, provided they have a qualifying relationship with their parent who receives child support. If you qualify as a dependent because your parents receive money from an ex-spouse or partner in order to provide for your care, then you can claim one exemption on behalf of yourself and another for each qualified dependant. As always, we recommend consulting a tax professional before making any decisions about whether this is right for your situation.