Understanding Child Support & Taxation Issues

Posted by: Gerald A. Maggio, Esq.

Divorce mediators in Orange County; California Divorce MediatorsAs per the federal law, the child support contribution is stated as tax- free for deductions under the income tax guidelines. The aforementioned law implies that both the recipient parent and the child are exempted from any taxes on the funds they receive as child support. On the other hand, the federal law states that spousal support payments are tax-deductible for the individual making the payments, and the amount is also taxable to the one who is receiving the funds. However, the child support funds do not fall under the tax deductible category for the one who makes the payment.

What counts as child support?

The separation or divorce agreement needs to have a clear cut distinction between, what is being paid and received as alimony, and what is to be considered as child support. Many a times, the divorce agreement does not display a clear demarcation between the alimony and child support , and clubs both the categories together as family support payments. Such a situation is detrimental to the parent receiving the child support payments, as the alimony or family support is considered as a taxable income for the recipient. In these cases, the custodial parent might actually end up paying taxes on the child support income, irrespective of what the funds are actually being used for. 

Which of the parent can claim the child as a dependant?

As per the law, a parent contributing to at least 50 % of his child’s support, during a fiscal year, is qualified to claim the child’s dependency on his taxes. It is quite an effective tax saving technique, employed by married couples who are living together. However, when the parents separate or take a divorce, things get more complicated. Post a divorce or a separation, only one of the two parents can benefit from tax exemption arising out of a child’s dependence on him. The Internal Revenue Service practices stringent laws when it comes to both the parents illegally claiming the child’s dependence on their taxes. 

Child dependency in the case of unmarried parents

In case the parents have been living together for more than six months, and have not been married yet, the dependency of the child can be claimed by the parent who provides more than half of the child support during a tax year. However, if neither of the parents is able to provide more than 50 % of the child support, the matters end up getting further complicated.

In such cases, it is always advisable to obtain legal consultation from a professional attorney who is better equipped to deal with the case as per your specific situation.  To learn more about the divorce process in California and how mediation can help, please visit our page, What is Divorce Mediation