Child support falls into something of a black hole when it comes to taxes. It's tax-neutral, meaning that it is neither a deductible expense for the parent who pays it nor taxable income to the parent who receives it. In some states, the court takes into consideration a parent's tax burden when it calculates a support order, but that's the only common ground child support and taxes share.
Consider Also: Child & Dependent Care Credit Requirements and Qualifications
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Taxes Affect Child Support Calculations
Child support is income-driven and calculated on a parent's net or gross income. This varies by state, so check with a local lawyer or legal aid office where you live. If your state uses net, rather than gross income, to calculate child support, your payments would be typically less because they're based on a lower amount of income. Net income is what's left after taxes and some other allowable deductions, such as union dues that you must pay in order to work.
Child Support Is Non-Taxable Income
When you make a child support payment to your ex, you're not giving her the money for her own use. You're giving it to her to care for your child. This makes the payments a personal expense, and personal expenses aren't tax deductible.
Because the money is for your child's care, your ex doesn't have to claim the money as income. Your child doesn't have to claim it, either, because the support is intended to meet his needs for food, shelter and clothing – things he would have been entitled to if you hadn't broken up.
Who Gets the Child Tax Credit
Under IRS rules, in situations of divorce or separation, the parent who cares for the child more than 50 percent of the time, will have the privilege of claiming them as a dependent for tax purposes. This is true for the Child Tax Credit as well.
In 2021, the American Rescue Plan was put into place, increasing the payments on the credit and creating advanced payments to parents. In this case, the custodial parent noted on the tax return from the previous year was the individual who received the advanced payments.
Consider Also: Claiming Dependents for Your Taxes
Alimony Is Sometimes Tax Deductible
If you're negotiating a marital settlement agreement with your spouse and you'll be paying both alimony and child support, consult with an attorney to make sure you get the wording of the agreement just right. The IRS treats alimony differently from child support.
For divorces finalized before 2019, alimony is tax deductible if you pay it, but your ex will need to report it as income. The Tax Cuts and Jobs Act doesn't allow for a deduction for alimony paid for divorces finalized after 2018, but the ex would also not need to report the alimony as income under the current rules.
If the wording of your agreement is ambiguous, the IRS can treat all your payments as child support. For example, if you agree to pay $750 a month in alimony and $500 in child support, but your agreement says something like you'll be paying your ex $1,250 a month in general support, you could potentially lose a $9,000 annual tax deduction for not clearly delineating each type of support.
The IRS looks at whether the amount of your payments can go up or down as your income changes and whether your agreement says your payments end when your child reaches the age of majority. Such statements indicate the payments are actually non-deductible child support rather than alimony.
Consider Also: Can they Garnish My Federal Income Taxes for Child Support?