If you pay or receive child support, the Internal Revenue Service has a set of rules to control the deductions and exemptions that you are allowed because of the payment or receipt of the child support. The terms of your divorce settlement will determine how child support will affect your taxes. It is very important to hire an experienced family law attorney who is familiar with the long-term implications of any child support agreement you come to during the divorce process.
Child Support is Non-Taxable:
Child Support payments are not taxable. The parent making the child support payment can’t deduct it from income and the parent receiving the payment does not have to claim it as income. For child support to remain non-taxable, it must be designated in the final divorce decree as “child support.” Although the payment and receipt of child support does not affect your taxes there is one important tax consequence related to child support payments:
Child Tax Exemption:
In order to claim someone as an exemption the IRS says that you must provide more than half of that person’s total support in a calendar year. A special rule was created by the IRS in order to resolve the question of dependency and who gets the exemption.
Which Parent Gets the Child Tax Exemption:
The parents must be:
- Divorced or legally separated under a decree of divorce.
- Legally separated under a written separation agreement.
- Living apart at all time during the last six months of the calendar year.
- One of both parents provides more than half the child’s total support for the year.
- One or both parents have custody of the child for more than half the calendar year.
The rule states that the parent who has custody for the greater part of the year is the custodial parent and that the parent will be treated as the person who has provided more than half of the child’s support. In other words if your ex-spouse pays more toward the child’s expenses than you do but you spend more time with the child and are responsible for the majority of child care you will get the child dependency exemption. You, the custodial parent who spends the most time with the child can claim the child as your dependent.
The non-custodial parent can claim the exemption if both parents agree and the following criteria are met:
- A written agreement signed by the custodial parent stating that he/she will not claim the child as a dependent.
- A final decree of divorce that states the custodial parent will not claim the exemption for the tax year and the non-custodial parent attaches the appropriate documentation to his/her tax return.
- A final decree of divorce that provides for the non-custodial parent to claim the child as a dependent along with a statement that at least $600 was in fact given in support to the custodial parent.
- The non-custodial parent must fill out a form 8332 from the IRS. The custodial parent and non-custodial parent must both sign the form and then it should be attached to the non-custodial parent’s tax return.
Negotiating the Child Tax Exemption:
The IRS won’t allow parents to split the exemption. The child will be considered a dependent for one parent or the other for the tax year. You can negotiate who gets the exemption on a yearly basis or a long-term basis during your divorce settlement negotiations. The exemption may be claimed by one parent one year and the other parent the next tax year.
You will want to take into consideration which parent will benefit most from the exemption, which parent earns more in income and other factors. It would not be in your best interest to sign a final decree that would give the exemption away for the long-term.
I would suggest that whatever you and your ex-spouse agree that you make sure the final decree of divorce includes a statement that would require both spouses to complete all necessary forms needed by the IRS at the time of filing taxes. I’m a firm believer that all wording in a final decree should be literal, exact and cover any thing that might come up after the divorce is final.