Trying to disentangle assets, property, goods and money is hard enough during a divorce, especially considering the heightened emotions that are virtually always involved. Adding children to the mix brings in a whole added layer of stress and worry – and, for many parents, added tax considerations.
Fortunately, although there are lots of rules regarding taxes and divorce – meaning it's best to check the IRS website for the specifics of your particular situation – child support tax rules as a whole are well-established enough that they're not a mystery.
First, let's talk a little about child support. The custodial parent (the parent the child lives with the majority of the time) will generally receive payment from – you guessed it! – the noncustodial parent after a divorce. These payments generally take both parents' income into consideration, but either parent can ask a judge to consider higher or lower support payments. For example, if Junior goes to an expensive private school, the custodial parent could request the noncustodial parent to contribute a bit more to help pay for it.
So: If you're paying $3,000 a month in child support to a spouse, can you claim $36,000 as a deduction on your taxes to cover the whole year?
Nope. Child support payments themselves are not deductible. And the custodial parent doesn't have to list them as income on their returns, either. However, there are still some ways for noncustodial parents to see some tax relief.
As a rule, the custodial parent gets to claim the child as a dependent. However, if the custodial parent gives it the go-ahead, the noncustodial parent can claim the child as a dependent instead. While not quite the same as writing off child support, it is a bit of tax relief.
Of course, it's not as easy as a handshake. The custodial parent must fill out IRS form 8332 (or write a statement that covers all the same points), and the noncustodial parent must attach it to his or her tax return.
If you have joint custody, you and your spouse can alternate claiming the child as a dependent from one year to the next.
Unlike child support, alimony – that is, spousal support – is tax deductible to the payer, and the payee has to report it as income. And if you roll alimony and child support together, you're making payments called "family support." Just like alimony, family support is tax deductible to the person who's paying, and the receiver must report it as income. So if you and your ex are looking for ways to give one spouse a deduction, consider the umbrella "family support" option for monthly payments while negotiating a divorce agreement. Of course, you'll have to meet all the rules and regulations if you're claiming it on your taxes.