Having a child has a financial impact, and understanding how child support can affect your tax liability is important. Child support is tax-free in terms of federal income tax which means the parent receiving support does not owe taxes on it. However, payments are not tax-deductible by the parent making payments.
Child support must be distinguished from alimony if both types of payments are due since alimony is taxable as income for whoever receives it.
To be able to claim a child as a dependent for tax reasons, you must be providing at least 50% of the child’s financial support during the tax year.
There is a special rule applying to the dependent exemption if the parents lived apart at all during the last six months, have a written divorce decree, maintenance agreement, or separation agreement. In such a case, if the child receives more than half of their overall support from either or both parents the IRS rules assume the custodial parent should receive the exemption for the dependent.
On the other hand, the noncustodial parent can gain the exemption if:
- The divorce decree mentions the custodial parent waives the right to claim the exemption, or
- The custodial parent formally relinquishes the right to claim the exemption
If the correct Form 8332 is not signed and attached properly to the tax return, the IRS can disallow the dependent exemption. In the event that the custodial parent refuses to sign Form 8332, the other parent can attach part of the divorce decree or separation agreement to the tax return to prove entitlement to the exemption.
If the parents are not married and lived together during the last six months or they have no written document, whichever parent provided more than 50% of a child’s support during the tax year can claim the child as a dependent.
You will need to consult with IRS Publication 504 if neither you nor the other parent provides more than half the child’s support.
When you need help handling your Denton child custody case and have questions about the impact on your tax liability, contact Coker, Robb & Cannon, Family Lawyers for a confidential case evaluation.