The terms of your divorce settlement will determine how child support will affect your taxes. Knowing the facts about child support taxes before agreeing to a final divorce settlement will help you avoid tax penalties in the future.
General Child Support Tax Rules
- Child support must be clearly labeled as child support and not combined with spousal support as family support for tax purposes. This is because alimony or spousal support is normally taxable to the beneficiary regardless of whether it is used to support a child.
- Child support payments are not taxable to the beneficiary.
- Child support payments are also not deductible for the person making the payments.
However, child support will affect your taxes in terms of who gets to claim a child tax exemption. Only one person – you or your former spouse – can claim a child as a dependent. The IRS also does not allow parents to split the exemption.
Tax Exemptions for the Custodial Parent
By default, the custodial parent is eligible to claim the child tax exemption. To recognize a custodial parent, the parents must:
- Be divorced or legally separated under a divorce decree;
- Be legally separated under a written separation agreement;
- Be consistently living in separate households during the previous six months of the calendar year.
The custodial parent is the parent who has custody of the child for the greater part of the year. That parent will be treated as the person who has provided more than half of the child’s support.
Tax Exemptions for Non-Custodial Parent
There are some circumstances under which the non-custodial parent can claim the child tax exemption:
- Both parents agree that the non-custodial parent can claim the exemption;
- A written agreement signed by the custodial parent declaring that they will not claim the child as a dependent;
- The final divorce decree stipulates that the custodial parent will not claim the tax exemption for the tax year and the non-custodial parent includes the documentation with their tax return;
- The final divorce decree provides that the non-custodial parent can claim the child as a dependent.
Negotiate before the Divorce is Finalized
Who gets the exemption can be negotiated as part of the divorce settlement? For example, you can negotiate to alternate years, so one parent gets the exemption one year and the other parent gets the exemption the following year.
This is where having an experienced divorce attorney can help. Sauls Law Group can assist you in evaluating which parent will benefit most from the child tax exemption and how you should negotiate child support taxes based on each parent’s income and assets. Contact us at (770) 212-9168 or through our Contact Us page for a free consultation.