There are no tax implications associated with the payment of child support.
If a parent pays child support to their ex-spouse on a monthly basis, or possibly even with each paycheck, they may be curious about whether or not those payments are tax-deductible. The answer that comes back from the Internal Revenue Service (IRS), which is unfortunate for those parents, is “No.”
It is considered a personal expense for you to provide for your children, regardless of whether or not they reside with you or if you pay child support. It does not qualify as a tax deduction. On the other hand, being a noncustodial parent may qualify you for one or two more prospective tax savings.
Here is the information you need to know about how the fact that you financially assist children can impact your taxes.
Why Doesn’t Tax Deduction Apply To Child Support?
It is not a tax-deductible expense if you take your kid to the mall to get a new pair of shoes because you did that. The Internal Revenue Service views payments for child support in the same manner. The money will, in all likelihood, be used to purchase shoes or something else of a similar nature, and this will happen regardless of whether or not you accompany your child to the shopping mall or whether your ex does so instead.
It does not matter if the money you pay is for your child’s housing, clothing, or any of the other aspects of their personal support; you cannot deduct it.
Should Your Ex Fill Out an Income Tax Return for the Money?
Your ex is not required to include child support payments on their income tax returns. Your kid does not have to record it as income, and neither does he or she have to report the allowance they receive to the Internal Revenue Service (IRS).
The Internal Revenue Service makes it abundantly clear that financial support for a kid is never eligible for a tax deduction on either the payer’s or the payee’s end. Even if they name their child as a dependent on their taxes, custodial parents shouldn’t count child support payments they get as part of their gross income because it’s against the law. The payment of child support is not treated as a taxable event.
Understanding the Tax Code
According to Section 61 (a) of the Internal Revenue Code (IRC), gross income includes all income, regardless of where it was earned, with the exception of “otherwise supplied.”
In a statement issued in 2016, the Internal Revenue Service (IRS) gave clarification that the “as otherwise provided” provision applies exclusively to payments linked to “the support of children.”
How Taxes Are Affected by Alimony Payments
The Internal Revenue Service draws a clear line between child support and alimony payments. This is due to the fact that, unlike child support payments, alimony and spousal support payments used to be tax-deductible. The individual who was responsible for making alimony payments could take a tax deduction for those payments, but the person who was receiving those payments was required to include them when calculating their taxable gross income.
Alimony in accordance with the TCJA
The Tax Cuts and Jobs Act (TCJA) does away with the tax deduction for alimony beginning with divorce settlements signed and divorce decrees issued on or after January 1, 2019. This change applies to all divorces that take place after this date. This provision, unlike many others relating to personal taxes that were altered by the Tax Cuts and Jobs Act (TCJA), does not return at the end of 2025. Instead, it is completely removed, unless a future Congress decides to fix the problem with more tax changes.
Include Alimony Income on Your 2018 Tax Return
During the tax year of 2018, which is when you would have filed your return in 2019, alimony payments were still tax-deductible.
You can correct a mistake like forgetting to deduct alimony payments by filing an amended tax return for the following year (as long as you do so within the statute of limitations of three years). However, attempting to reclassify child support payments as alimony in order to qualify for a tax deduction is not a good idea. The Internal Revenue Service (IRS) can become suspicious of taxpayers if they violate a provision known as the recapture rule, which is written into the tax code. In the event that you go back and attempt to categorize payments, you could end up setting off those warning bells.
If you are unable to provide documentation to the court proving that the payments were in fact alimony, you will be required to repay the taxes that you deducted from those payments on any subsequent tax returns that you file. You may be asked to produce court documents proving that the payments were indeed alimony.
There is still an opportunity to take a tax deduction for medical expenses
When it comes to tax deductions, noncustodial parents are not completely left out in the cold. When it comes to medical expenses that you pay for your children, the Internal Revenue Service (IRS) is happy to provide a tax credit for you.
You can take an itemized deduction for your children’s medical expenses even if they don’t live with you, as long as you paid for them yourself and they lived with you or your ex for at least half the year.
Unfortunately, in order to take this deduction, you will need to itemize, which requires you to forego the deduction that is standard for your tax filing status. Because the Tax Cuts and Jobs Act (TCJA) nearly quadrupled the amount of the standard deduction, this wouldn’t make sense unless the sum of all of your itemized deductions was going to be greater than the amount you were allowed to claim as your entitlement for the standard deduction in that tax year.
Also, your total medical costs must be more than 7.5% of your adjusted gross income (AGI) for you to be able to take a tax deduction for them. The individual standard deduction for the tax year 2021 (which corresponds to the taxes you’ll submit in 2022) is $12,550 in 2021 and $12,950 in 2022. These amounts are listed below.
This indicates that the total of all of your itemized deductions would need to be higher than this amount for it to be worthwhile for you to itemize your deductions. If that were the case, you’d end up paying more income tax than is necessary.
The Credit for Children’s Taxes
In addition, the Child Tax Credit is still around and functioning normally. It has a maximum value of $3,600 per eligible child in the 2021 tax year for families with an annual income of up to $150,000, and it is fully refundable in accordance with the conditions of the American Rescue Plan that were signed into law on March 11, 2021.
In contrast to the Earned Income Tax Credit, noncustodial parents are eligible for this credit if the custodial parent signed IRS Form 8332 and gave them permission to claim their child or children as dependents. This permission was granted by the custodial parent to the noncustodial parent. Children of unmarried, divorced, or never-married parents are subject to a different set of eligibility requirements than other children.
Form 8332 must be included in the tax return submitted by the parent who does not have custody of the child.
Child Support Payments That Are Overdue
It is not possible to deduct child support payments from your taxable income. Nonetheless, any unmet child support obligations could jeopardize your ability to receive a tax refund. People who are overdue on their child support payments will have their federal tax refunds intercepted by the Treasury Department, and the money will instead be sent to the custodial parents who were entitled to receive support in the first place.
Questions That Are Typically Asked (FAQs)
How exactly does the system of child support work?
A parent who does not have primary physical custody of their child is responsible for paying financial support to the parent who does. State and municipal governments are responsible for enforcing this obligation to guarantee that noncustodial parents fulfill their statutory commitment to financially support their children. Although the procedure varies slightly from one organization to the next, in most cases, you have the option of voluntarily entering into a child support agreement or having the arrangement compelled upon you by a court order. If the custodial parent files a child support claim against you, the court will begin a procedure to confirm paternity, assess payment obligations, and set the conditions of your payment arrangements. If the custodial parent does not file a claim against you, the court will not undertake this process.
Who is responsible for paying taxes on child support?
Both the person making the payment and the person receiving it are exempt from paying taxes on the amount of child support received. Any money that you give out as child support has already been subject to taxes because it is considered part of your taxable income.