Understanding Child Support and Taxes

It is important to know your rights when it comes to child support, who can claim the child as a dependent and what tax benefits or exclusions are applicable to the parent who pays the support and the parent who receives it and has custody of the child.

Tax Exempt Child Support

In order to qualify for exemption from taxes for the child support you pay, that support must be paid as a part of a court approved alimony or family support payment and not have any designated portion of the payment dedicated exclusively to child support.

If such is the case, it should also be understood that taxes must still be paid on the support, the obligation is simply transferred to the recipient rather than the payee. This means that if you pay child support under a non-taxable umbrella, the monies will be taxable even if they are used for the child or children.

Claiming Dependents for Tax Purposes

Even if you have your dependent listed under such programs as your health insurance, there still can be a question of who claims the child at tax time. For parents who are still living together, there is no question because taxes are typically filed using the “married, filing jointly” status. When both parents are no longer living in the same home, as a rule:

  • The parent who has custody and provides for more than 50% of the child’s welfare is the one who can claim the child.
  • Only when the custodial parent waives their right, which must be done by filing IRS Form 8332), can the parent who is paying the support clam the exemption for the dependent.
  • When a separation or divorce agreement has a provision written into it that waives the right of the custodial parent. This is not applicable to agreements made before 1985.
  • Waiving the right to exemption also disqualifies you from filing for the child tax credit as well.

When In Doubt, Get Legal Help

The Internal Revenue Service (IRS) takes the filing status of exemptions very seriously. It is a common practice for the IRS to cross check social security numbers of dependents claimed to ensure that separated parents are not both claiming the exemption. Because the IRS can make your life very uncomfortable with an audit or delay a tax refund with a prolonged review of your tax documents, it is important to file everything properly.

This means if you need help or are in doubt about what status should be used for dependents, you should seek legal advice. The IRS has a wealth of information contained in their website about the use of Form 8332 as well as about child support and tax implications associated for the payee and for the recipient.