Taxes

When dealing with child support and taxes, you should contact your Terre Haute family law attorney to help you. Many people who pay and receive child support are unaware of how the federal taxes work for the payments. Child support payments are not eligible to be deducted from your taxes, unlike spousal support. The person who receives the child support is not required to pay taxes on the money received either. However, when you and your spouse are agreeing on a martial separation agreement, be aware of how the child support section is written. There could be tax consequences you are not aware of.

What Counts as Child Support?

In order for your payments to count as child support, the payments must clearly be labeled as “child support payments” in your separation or divorce papers. If the child support payments are lumped in with any other payments, such as alimony or spousal support, then none of the payments that are being made will be considered as child support. Therefore all the money that is being paid out will be considered as taxable. If you are receiving the payments from your agreement, you will be responsible for any taxable income that needs to be paid to the federal government no matter what the money is being used for.

Which Parent Gets to Claim the Child as a Dependent?

Parents who are married and living together should have no issue with claiming a child. However, separated or divorced parents will be facing this issue come tax season. Traditionally, the parent that provides at least 50% or more of the child’s needs during the year will be the one who can claim them as a dependent on their income tax return. When parents are divorced or legally separated, things can become a little more complicated when it comes down to claiming a child as a dependent. Only one parent can legally claim the child. In fact, the IRS will cross-reference both parents’ Social Security numbers to be sure that they are not both attempting to claim a child. The following information is broken down by living situation and what parents can do in those situations.

The Rules for Parents Who Are Living Apart

A special rule for the dependent exemption applies to parents who have lived separately for the past six months during the year in question or have an agreement that has been established such as a divorce agreement, separation agreement, or maintenance agreement. Normally, the parent who is considered the custodial parent is the one that will be allowed to claim the child as the dependent.

What Qualifies as a Custodial Parent?

The parent who has provided half or more of the financial support for the child and has had the child in their custody for the majority of the year is considered to be the custodial parent. A non-custodial parent may be able to claim the child as a dependent, however the following statements will need to be true for that to happen:

  • Within the established separation papers, it must state that the custodial parent waives their rights to claim the child as a dependent.
  • The parent who is the custodial parent can sign a declaration (IRS Form 8332) which will give up their right to claim the dependent exemption. The form can cover just the year, or however many are declared by the parent.

The IRS can turn down Form 8332 if it is not filled out properly. The noncustodial parent must attach this signed form to every tax return for every year that they are claiming the dependent exemption. The parent who is considered to be the custodial parent can refuse to sign IRS Form 8332. If that happens and the parents have a previous written agreement that says that the custodial parent must sign the form, then the non-custodial parent could copy that part of their agreement and attach it to the tax return. By doing so, it will prove that the non-custodial parent is entitled to receive the dependent exemption. However, if there are conditions in the pre-existing agreement, then the non-custodial parent will still need to fill out Form 8332 or face not receiving the exemption.

The Rule for Parents Who Are Together but Unmarried

If the child’s parents are living together and have not lived apart for six months during the year, then the parent who provides 50% or more of the child’s financial support will be the one to claim the dependent exemption. That is, unless there is a written agreement between the parents that state otherwise.

The Rule for Parents Who Support the Child Equally

If both parents contribute an equal amount to the child’s financial support, then things become a little more complicated. If this is the case, you should contact your local family law attorney or consult the IRS website to see how they would recommend handling that situation. If at any time you have questions regarding your child support and tax issues, consult a Terre Haute family law attorney to help you understand your rights.