The Income Tax Treatment of Child Support
A common question in my office from parents experiencing divorce concerns how to treat child support for income tax purposes.
Fortunately, this is an easy one to answer. Child support payments have no income tax effect: They are not deductible by the paying parent, and they are not taxable to the receiving parent.
In a rarity in the tax code, there are no exceptions. Most tax provisions have exceptions and exceptions to the exceptions, and exceptions to the exceptions to the exceptions. But here’s one place where there is a hard and fast rule: Child support is not deductible and not taxable.
This is the polar opposite of alimony (also called spousal support or maintenance). As long as it meets all the requirements in the tax code, alimony is deductible by the one paying it, and taxable to the one receiving it.
It can get messy when both child support and alimony are involved in your divorce. If you’re not careful, you can wind up with payments you thought were tax deductible alimony being treated as non-deductible child support. Sometimes even divorce lawyers miss this one.
Property divisions in a divorce generally have no income tax effect either. Again, though, you have to be careful when you have both alimony payments and a significant property division.
Be sure to consult with an experienced family law attorney to make sure your agreement meets the criteria in the tax code. You might also want to check with a tax advisor who is familiar with divorce.
Tom Norton is the St. Louis based founder and owner of his own CPA firm, Thomas Norton & Company, LLC. Tom specializes in helping women, men and couples with the financial aspects of their divorce. He is also the founder of a divorce website, http://DivorceAndMoney.org - It is the Internet’s best source for financial information, calculators and resources to use before, during and after your divorce.