The terms of your divorce settlement will determine how child support will affect your taxes. You want to pay attention to how child support is described in your divorce settlement to avoid negative tax consequences.
Child support must be explicitly designated as “child support” and not commingled with spousal support as “family support” for tax purposes.
This is because alimony or spousal support is normally taxable to the recipient regardless of whether it is actually used to support a child.
Child support payments are not taxable to the recipient. Do not include child support payments in your gross income calculations when filing a tax return.
Child support payments are also not deductible for the payor.
However, child support will affect your taxes in terms of who gets to claim a child tax exemption. Only one person – you or your former spouse – can claim a child as a dependent. The IRS cross-examines tax records and will know if both parents are claiming the same child as a dependent.
The IRS also does not allow parents to split the exemption.
WHO IS THE CUSTODIAL PARENT?
By default, the custodial parent is eligible to claim the child tax exemption. To recognize a custodial parent, the parents must:
- Be divorced or legally separated under a divorce decree;
- Be legally separated under a written separation agreement;
- Be consistently living in separate households during the previous six months of the calendar year.
The custodial parent is considered to be the parent who has custody of the child for the greater part of the year. That parent will be treated as the person who has provided more than half of the child’s support.
EXCEPTIONS FOR NON-CUSTODIAL PARENTS
There are some circumstances under which the non-custodial parent can claim the child tax exemption.
- Both parents agree that the non-custodial parent can claim the exemption;
- A written agreement signed by the custodial parent declaring that they will not claim the child as a dependent;
- The final divorce decree stipulates that the custodial parent will not claim the tax exemption for the tax year and the non custodial parents includes the documentation with their tax return;
- The final divorce decree provides that the non-custodial parent can claim the child as a dependent.
Who gets the exemption can be negotiated as part of the divorce settlement. For example, you can negotiate to alternate years so one parent gets the exemption one year and the other parent gets the exemption the following year.
This is where having an experienced divorce attorney can help. A divorce attorney can assist you in evaluating which parent will benefit most from the child tax exemption based on each parent’s income and assets.
An experienced divorce attorney can also ensure that the final divorce decree includes provisions for IRS forms to be completed by both spouses at the time of filing taxes.