How Are Child Support Payments Treated for Federal Income Tax Purposes?

Tax law is one of the most significant legal areas that often crosses over into family law practice. Because many family law cases involve rights to property and payment obligations, understanding the legal implications of both areas of the law as they pertain to each other is vital for both practices. 

As a family law firm, we do not give our clients tax advice.  We do, however, frequently work closely with CPAs and tax advisors in recognizing potential tax issues and helping our clients get the tax advice they need from appropriate tax professionals.  That said, in most cases child support is treated in the following manner by the IRS. 

For example, the recently enacted tax reforms drastically changed the tax treatment of alimony payments for federal income tax purposes. Previously, taxpayers could deduct qualifying spousal support payments from their gross income on their federal tax returns. However, the applicable rules under the new reforms eliminated this deduction for the payor spouse and no longer require the receiving spouse to include alimony payments as part of their gross income on their tax returns. But how does the Internal Revenue Service (IRS) treat child support payments? This article examines the tax implications arising from child support obligations

Child Support Is a Nondeductible Family Expense 

Under the federal tax code, child support payments are not deductible or includable with respect to a taxpayer’s gross income. Unlike alimony, child support obligations derive from a legal duty that arises from the parent-child relationship. Consequently, a divorce does not extinguish a parent’s legal duty to financially support their children and provide the necessaries of life, such as food, shelter, clothing, education, and health care.  

Accordingly, child support payments are considered to be personal or family expenses. Under 26 USCS § 1, “no deduction shall be allowed for personal living or family expenses.” Child support payments are normally made by a noncustodial parent to the custodial parent. However, the custodial parent does not have to include child support payments received as part of their gross income. Incidentally, the  

Additionally, the IRS treats retirement benefits paid as child support pursuant to a qualified domestic relations order (QDRO) as paid to the participant of the retirement plan. If the taxpayer was entitled to a tax deduction or exemption based on the nature of the retirement plan, the tax treatment of those retirement benefits does not change by virtue of its allocation as child support under a QDRO. 

Can Qualified Tuition Programs Satisfy Child Support? 

Child support derives from a parent’s duty to provide their child with enough financial support to cover a child’s basic needs, including their educational needs. A qualified tuition program—also known as a 529 plan—is an investment vehicle designed to help families save for a child’s educational expenses, similar to how 401(k) plans help people save for retirement. Parents can make tax-deductible contributions to a 529 plan. Furthermore, 529 distributions used to pay for certain educational expenses were also tax-free. 

Congress recently enacted reforms that expanded the use of 529 plans to cover $10,000 of elementary and secondary school expenses from public or private institutions. This drastic expansion raises the question of whether 529 contributions and distributions used for a minor child’s education can satisfy the plan owner’s child support obligations.  

Originally, 529 plans were limited to child’s college expenses. However, because child support orders typically terminated when a child turned 18, whether 529 funds could be used to pay child support wasn’t really an issue. Sometimes a separation agreement or divorce settlement obligated a child’s parents to provide financial support to their child’s post-secondary education. The parties had discretion to contractually determine whether 529 contributions or distributions were a sufficient way to satisfy a college support obligations. 

However, since congress expanded the scope of a 529 plan’s use to elementary and high school expenses, this creates new legal ground for its recognition by courts to satisfy child support obligations. Notably, the expansion of the 529 plan’s scope only took effect this year. Only time will tell exactly how this reform impacts child support cases. Until then, it’s likely that parties can continue to determine this issue through different marital contracts. 

Comprehensive Legal Counsel from Coker, Robb & Cannon, Family Lawyers 

If you are in the middle of a divorce, you should retain the services of a professional attorney who can provide comprehensive counsel on family matters and their associated tax implications. At Coker, Robb & Cannon, Family Lawyers, we take pride in delivering quality legal services that are personally crafted to fit your individual needs. 

Contact us online or call our office at (940) 293-2313 to schedule a case evaluation exploring the merits of your case and the extent of your rights today. 

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