ivorce is a dramatic life change for a family. Emotions often run high, but the difference affects far more than feelings. On a practical level, life experiences are markedly different: You and your ex-spouse live in different houses. You may even life indifferent states. As each of you charts the course of your new lives, each day entails unfamiliar challenges and opportunities. Despite the differences, one thing remains constant for divorcing parents: You are still deeply invested in co-parenting your children.
Divorce radically remakes a family’s finances. Particularly when a non-custodial parent pays child support, you might have questions regarding approaching and reporting those payments on tax forms. Here, we’ll address questions about the relationship between child support and taxation, including:
Before we tackle that question, we first need to provide bit of background information on U.S. tax law. When you file your annual income taxes you’re calculating how much you should have paid in taxes to the IRS over the past calendar year based on what you earned in that year. But it’s not as simple as saying “I made this so I have to pay this.” The number that you use to determine your taxes, or taxable income, is not the same thing as your gross income.
Gross income is the total dollar amount you received from investments and employment. In other words, it’s all of money you have coming into your household. Taxable income is different. It’s a smaller number that you arrive at by subtracting amounts and expenses that are allowed by the government, known as exemptions and deductions. Popular deductions include student loan interest deduction and child tax credits that lower household tax burdens.
So, not all money that comes into your home should be taxed, and your tax return is how you show the government what you should owe in taxes in light of the complete picture of your financial life. Assuming you can show that the tax collected from your income throughout the year exceeds the amount the IRS or state tax tax collection agency requires your household to pay, you’ll be entitled to an income tax refund.
Quick note: Only nine states have no income tax. They are:
If you don’t live in one of these states, you’ll have to file a state income tax return in addition to a federal return. State income tax returns will have their own rules and laws about deductions and taxable income. Because those laws can be substantially different from the federal tax laws, check with your local tax preparer about whether your child support payments are treated differently under state law.
So, with that context, let’s say that you’re the non-custodial parent and you make monthly child support payments to your ex. Will the IRS let you deduct those payments from taxable income, like you can do with spousal support? Since you’re being compelled to make the payments by court order, you may feel like the government itself is docking your pay.
If that’s how you feel, sorry. There’s bad news. The IRS’s answer to “Is child support tax deductible?” is a clear, resounding “no.” While this might not feel fair in your individual situation, from a broad social standpoint this policy makes sense. When you and your spouse lived together, you couldn’t claim your grocery bills as tax deductions. Even if you are the non-custodial parent, your money travels from the same point A to the same point B. You’re still drawing income to pay expenses — passing through a court- or mediator-ordered child support payment doesn’t change that.
While the IRS doesn’t allow deducting child support, divorced parents can take advantage of several other deductions. For example, if you pay for summer camp or daycare for your child, you may still qualify for a tax credit. Because a tax credit directly lowers your tax liability, it’s arguably better than a deduction.
So, it’s important to keep all your options open when figuring out your post-divorce tax situation, which does not live and die based on child support payments.
Conversely, custodial parents are right to wonder if child supports count as income in the eyes of state and federal tax collectors. After all, paychecks aren’t the only source of income households need to be included on tax filings. Interests on investments, gambling winnings, prizes, or gifts can are all considered income sources that you need to report to the IRS.
You might be tempted to think of child support income simply as income for your household. It can certainly feel that way. If you or someone in your family has received Social Security benefits, you know that those can be taxed. Alimony payments are also taxed in the same way. But the IRS doesn’t see it like that regarding child support.
According to the IRS, child support payments are not considered income. The reason is similar to child support not being deductible for the non-custodial parent. When two parents are married and one of them takes the kid out for a nice dinner, the other parent doesn’t have to report that dinner as income.
Of course, this is also a generalization. By no means should you consider this one-size-fits-all tax filing guidance. You should definitely talk with your tax preparer about your own state’s laws on the subject.
Child support is not the only complicated situation that crops up in post divorce tax preparation. As you probably know, the government provides multiple tax benefits for parents, including:
Before your divorce, you didn’t have to think about each of these too much because the head of household would file and get the tax benefits. After divorce, though, it pays to think a bit more about how to claim your kids on your taxes, as well as your ex’s taxes. You can ensure you’re making the best use of all child tax benefits for your family.
There are many factors at play, like the relative amount of money each of you is paying, as well as custody schedules. You can split the above tax benefits between you if you and your ex are divorced or separated and have been for at least the last six months of the tax year.
As long as you meet the IRS’s criteria (like this one for the earned income credit), the non-custodial parent can get the child tax credit for tax purposes, while the custodial parent can get benefits for child care and the EITC.
This can be a particular benefit for your family when the non-custodial parent makes more money, which is typically the case if that parent pays child support.
These exceptions and special rules may seem complicated at first. But keep in mind that they were put in place to help families like yours, and they ultimately benefit the children. Again, it’s a good idea to consult with a qualified tax professional to make sure you’re handling your taxes correctly.
Nobody likes paying taxes. But paying taxes is even less fun when you pay more than you should. If you are a newly divorced parent, it’s critical to make sure that your family is taken care of on financial and tax issues. As you can see, those issues go far beyond the simple question of, “Is child support tax deductible?”
Before you even get to tax time, it’s a good idea to keep meticulous records of all expenses related to your children, as well who paid those expenses and when. The Onward app can help you do just this by breaking down different kinds of expenses, sending payment requests to your ex, and letting you export records so that your tax advisor can help make sense of it all.
Don’t be afraid of financial issues. The sooner you tackle the problem, the better the shape you’ll be when tax time comes around.
Matthew Carter has been a licensed attorney since 2004. He has successfully handled a variety of trials, appeals, and evidentiary hearings throughout state and federal courts. Matthew has done pro bono work in the Las Vegas community representing foster children and helping reunite families separated in the Las Vegas family court system.