Dealing with a divorce, or a breakup can be hard enough, without having any minor children involved. When children are involved, it makes the whole process more difficult and expensive, especially for parents who are dealing with Family court, custody, and child support for the first time. On top of getting everything set up and everyone happy with the agreement, there are always left-over questions that the judge or court might not answer for you, especially when it comes to the effects of child support payments on the finances of the parents.
Whether you are a custodial parent or the noncustodial parent, you might be wondering how this will affect your tax return, whether or not child support payments are considered taxable income, and whether paying or receiving child support will affect your taxes. You may also be wondering how child support arrears works when it comes to tax refund time.
These are all common questions for those dealing with child support payments for the first time or even those who have been through the courts and still have questions. Whether you are a custodial parent, or the non-custodial parent, contacting an experienced family lawyer in Illinois to answer your questions should be your first step.
The federal government does not tend to be very forgiving, and incorrectly filing your taxes can cause larger, more expensive problems down the road. Whenever you're dealing with something as serious as your federal tax return, you should always consult a professional in that area, such as the family law specialists at Tommalieh Law, to make sure you're getting the right answers.
Is Child Support Taxable?
Child Support is considered tax neutral, just like alimony payments since 2018. When something is considered tax-neutral, that means that the payer cannot deduct their payments on their taxes, and the payee does not claim their payments on their taxes.
As a noncustodial parent who is making child support payments, you pay regular income and social security taxes as normal, and you cannot recoup the taxes you pay on money that is then used for child support payments. This is because child support payments aren't tax-deductible, they are considered personal expenses for tax purposes. Essentially, because child support payments go to paying for items, schooling, food, or housing for your child that you would be helping to provide if you and the child's other parent were still in a relationship, nothing changes. You pay taxes on your income as you are paid, and then use your already taxed income to pay your child support payments.
The custodial parent who is receiving child support payments does not pay taxes on those payments, since the non-custodial parent is already paying the taxes on the payments before they send them. This means that child support payments received are not taxable income. You should not claim child support on your taxes, as this might cause you to overpay your taxes. Dealing with getting refunds from the IRS can be a hassle, especially at the height of tax season each year. Getting it right the first time is always your best bet.
Can Child Support Affect My Tax Return?
For the non-custodial parent, failing to meet your child support obligation can incur child support debt, as well as interest on that debt. Missing one or many child support payments is known as being in child support arrears. This debt can be repaid by the non-custodial parent overtime, or taken from the noncustodial parent's bank account or federal tax returns by the ruling child support agency.
In some states, persons who are behind on their child support payments can even lose their license or face jail time. Your federal tax refund can be seized either partially or fully to cover your back child support. If your tax refund is enough to cover your child support debt fully, then you will no longer be in child support arrears. However, if it is not enough, you will still owe the rest of your past-due support until your debt is paid.
Non-custodial parents may also be wondering if they will be refunded their taxes from the money they used to pay child support. Because child support is tax neutral, and not deductible, you will only receive your normal amount of taxes back each year, not extra. This can be frustrating for some, but you must remember that this is money you would be spending on your child no matter what, and it still wouldn't be tax-deductible even if you have full custody of your child(ren).
For the parents with primary custody or who receive child support, child support does not affect your tax return at all. All forms of child support are non-taxable. This means that no matter the amount or type of child support you receive, you do not have to claim these on your taxes or as a part of your income for tax purposes. Any income you have from child support payments will not affect your Earned Income Tax Credit (EITC) or your Child Tax Credit (CTC), as these payments are not reported as earned income.
Learn More: How to Modify a Child Support Order
Who Gets to Claim the Child on Taxes?
There is no set parent that gets to claim the shared child on their taxes. Your divorce and custody agreement should have instructions on which parent gets to claim the child as their dependent. Some divorce settlements allow the parents to switch off each year on who gets to claim the child, some settlements only allow the custodial parent or non-custodial parents to do so.
If your divorce agreement does not include language clarifying who is allowed to claim the child(ren), then it is somewhat of a race: whichever parents filed first gets custody. That's why it's important to have specific language in your divorce and custody settlements outlining how claiming your child(ren) as a dependent will work in the future. If your settlement does not include this language, contact the family law specialists at Tommalieh Law to start the process of getting this fixed.
Being able to claim your child on your taxes, as a non-custodial parent, isn't as simple as you might think. Even if your custody arrangement gives you the right to claim your child on your taxes yearly or only for certain years, you will not receive the same perks and tax breaks that the custodial parent receives.
Only a custodial parent can claim child care expenses (daycare, after-school programs, summer camps) on their taxes. Custodial parents are also the only parent allowed to file as Head of Household in relation to the shared minor child, as well as the earned income credit.
Be Prepared: How Long Does it Take to get Child Support?
Is There any Part of My Child Support I can Claim on My Taxes?
While there are lots of different parts of raising a child that is tax-deductible, non-custodial parents are not able to claim any part of rising their child on their taxes, unless their divorce has granted them certain years, etc, in which to file for their child.
Even if a non-custodial parent pays for private school tuition, extracurricular activities like sports and clubs, medical bills, or insurance, only the parent who is claiming the child that year is able to claim those items as tax deductions. If you are paying for events, activities, or appointments outside of your child support money, you should be aware that you cannot claim them as write-offs or deductions unless you are also able to claim your child as a dependent that year.
If You are Going Through a Divorce or Have Issues With Child Support Call Our Firm Today
Over 800,000 couples file for divorce each year, and there are over 13 million children with divorced parents in the United States. You are not alone, and there are so many great resources to help you on this new journey. While it can seem overwhelming, there are more than enough experienced people to help you every step of the way.
Whether you have questions about an already settled custody agreement, need help restarting your child custody or child support battle, or are taking your first steps towards co-parenting and don't know where to begin, we're here for you.
At Tommalieh Law we have an excellent team of expert Illinois child support attorneys that are dedicated to helping our clients as much as they can. Through a free consultation, you can come and sit down with anyone on our team, who will be happy to walk through all of your questions and your case with you to build a personalized game plan.