Child support can be confusing. It takes a big bite out of the income of the parent who pays it and the parent who receives it is receiving it to support your child. So, when it is time to file your taxes, questions often come up. If you have questions, consult with a child support lawyer today.
Does the paying parent have to pay taxes on the child support money and can they claim it as a deduction?
Child support is handled outside of the income tax system. You pay your taxes through your payroll before you are given your pay. What is left is considered your post-tax net income. This post-tax net income is the figure the courts use to determine how much your child support payments will be. They are based on a percentage of your net income, not your gross income.
Another way to look at it is, you pay taxes on your pay, not your child support. Therefore you cannot claim this money back as an expense.
Does the parent receiving the child support payments have to file it as income?
Just as the payments are outside the income tax system, so is the receipt of the money. The money is taxed before it is paid by the other parent. The parent receiving the money to provide his or her portion of the expenses of raising the child does not have to add it to their income (which would mean you would pay taxes on it a second time).
What if my child support is garnished from my pay? Do they deduct it before or after taxes are paid?
The deduction will happen after your taxes have been deducted. An easy way to remember it is a saying, “taxes before toddlers.” The United States government gets theirs first, then your child gets theirs.
Who claims the child on their Federal Tax Return?
The general rule is, the parent who has primary custody and cares for the child more than 50% of the time, claims them on their Federal taxes. If the parents have shared or joint custody, they will share the taxes as well. Most of the time the court will order that each parent takes a turn claiming the child, every other year. This keeps it fair to both parents. There are times when the parents will agree to allow one parent to file the child on their taxes every year or on certain years for whatever reason. This is not against the law, but only as long as one parent claims the child.
What is Earned Income Credit (EIC)?
There are specific rules on who can claim the EIC. Earned Income Credit is for people who work and make below a certain amount of money. There are times when having a “qualifying” child helps someone qualify for EIC. A noncustodial parent, who physically cares for the child less than 50% of the time almost never qualifies for EIC. This is because they do not pass the residency test which makes them ineligible.
Contact one of our child support attorneys for more information on child support and the effect it has on your taxes.