Child support payments are not taxable according to the Internal Revenue Code. The Internal Revenue Service does not include child support payments as taxable income to the recipient parent. The IRS does not provide the paying parent a tax deduction for child support payments. The IRS provides specific requirements for non-custodial parents to receive the tax-free treatment.
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Requirements of Support Obligation
To receive tax-free child support payments, the non-custodial parent must have a written child support order, property settlement agreement or divorce agreement incorporating a separation agreement outlining the legal obligation for the non-custodial parent to provide child support payments. The IRS requires written support agreements to contain unambiguous language that refers to the payments as specific child support payments. The IRS does not consider language within an agreement requiring spouses to provide monthly family support payments as a child support obligation.
Since the IRS taxes alimony as includible income to the receiving spouse and provides paying spouses with a tax deduction for monthly alimony payments, a general provision within a settlement agreement providing for monthly family support may include alimony payments. Child support payments that end at death of one spouse, payments that attempt to transfer property and assets between spouses and payments that end at the recipient spouse's remarriage do not qualify as child support payments.
Importance of Drafting Agreements
Divorcing spouses should recognise the importance of retaining qualified domestic relations attorneys that understand the federal tax implications. Generally, each state's legislature determines child support obligations through state guidelines according to visitation days and the income shares between parents. Since attorneys representing each spouse have a legal duty to represent their client's best interests, receiving preferential tax treatment becomes an important financial consideration for divorcing spouses. Custodial parents can reduce their tax liabilities with child support payments, while non-custodial parents can reduce their liabilities with alimony payments. Ambiguous language by attorneys drafting the support obligation can make it easier for the IRS to view a child support payment as an alimony payment.
The IRS requires taxpayers to report all earned income on their IRS 1040 Forms at the end of the tax year. Taxpayers who receive child support payments can exclude the income from their total earnings for the year. Taxpayers who receive alimony must report it as part of their annual earnings on Line 11 of their tax returns. Taxpayers who claim deductions for alimony can deduct it on Line 31 of their tax returns.
The IRS provides this tax-free treatment to both separated and divorced spouses as long as spouses have a written agreement between them providing the child support obligation or if there is a court-ordered child support obligation.
Since tax laws frequently change, you should not use this information as a substitute for legal or tax advice. Seek advice through a certified accountant or tax attorney licensed to practice law in your jurisdiction.
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