Child support is generally nontaxable. The parent and child receiving child support payments are usually not obligated to report the payments to the IRS as income; however, if the terms of the divorce aren't clear there can be serious tax consequences.
If child support is not clearly designated as separate from other types of support or compensation in the divorce settlement, the parent receiving the child support may be liable for a federal income tax on child support money.
The tax status of child support depends on how the payments are specifically characterized in the divorce decree. One parent will pay federal income taxes on child support money. The designation of the type of payments in the divorce settlement determines which parent will be liable for federal income taxes.
If the divorce settlement lumps child support together with alimony, designating it as family support, and a specific amount of child support is not specified, the parent receiving the payments must claim all of the payments as income on federal tax returns.
Child support payments aren't typically tax deductible. The parent who makes child support payments is not permitted to claim a deduction; however, if the child support payments are designated as family support or alimony, the parent who pays the support may be entitled to a tax deduction.
The divorce settlement should also specify which parent will claim the child as a dependent and receive the federal tax exemption. In many cases, the parent who is the primary custodian of the child will claim the child as a dependent, but some parents may decide to alternate years to share the tax deduction. In families with more than one child, the parents may choose for each parent to claim a child each year.
The IRS created a special rule for claiming children as dependents. A parent must be responsible for at least half of the child’s total support during the calendar year to take the tax deduction. Parents who haven't paid child support are ineligible to claim the child as a dependent. There's one exemption per child, per year. Both parents may not claim the same child for the same year, or the IRS will recover the tax deduction from the parent who wasn't entitled to take the deduction and assess penalties.
A local divorce lawyer can help you protect your finances by talking you about how child support and taxes will affect you. Any proposed divorce settlement should be reviewed by a divorce attorney before it's signed to avoid unexpected tax liabilities on child support. Connect by calling 877-349-1310 or filling out a divorce case review form to get started.
The above synopsis of child support laws is by no means all-inclusive and is not intended to provide legal advice. These laws may have changed since our last update and there may be additional laws that apply in your situation. For the latest information on these divorce laws, please contact a local divorce lawyer in your area.