Child Support and Taxes: Non-Custodial Parent FAQs
Child custody arrangements and income are significant factors in determining both child support award amounts and income tax return obligations. Generally, a child’s noncustodial parent (the parent who cares for the child less than half of the time) pays child support to the custodial parent (the parent who is primarily responsible for the day-to-day care of the child). Since custody, income, and child support are closely connected, child support responsibilities can affect a noncustodial parent’s tax returns. This article answers some frequently asked questions about how child support payments can impact a non-custodial parent’s Internal Revenue Service (IRS) tax filings.
How does income affect child support orders?
When establishing a child support order, a judge generally must follow specific state guidelines. Those guidelines are “income driven,” meaning the support amount is determined primarily by the income of the parties. Income goes beyond simple wages and salary, however, and it’s important for parents to understand what funds are considered "income" under the child support guidelines. For example, the income of a new spouse, to the extent that income directly reduces the expenses of the custodial parent, is considered income for child support purposes.
Q: Does the IRS consider child support to be income?
No. According to the IRS, child support payments are not considered taxable income. That means, child support payments cannot be deducted by the payer (noncustodial parent) and are not taxable to the payee (custodial parent). Accordingly, when calculating your gross income to see if you are required to file a tax return, do not include child support payments received.
Q: Does Form 8332 affect the Child Tax Credit?
A: Yes. Certain individuals may claim a tax credit for their dependent children. Only the parent using the dependency tax exemption can claim the Child Tax Credit. A custodial parent may use Form 8332 to release the exemption to the noncustodial parent. In that circumstance, the noncustodial parent would qualify for the dependency exemption and therefore the Child Tax Credit. For an explanation of who qualifies for the Child Tax Credit and how to calculate it, refer to the Instructions for Form 1040 or the Instructions for Form 1040A index for Child Tax Credit.
Q: If the noncustodial parent receives permission from the custodial parent to claim a child on his or her tax return, is the noncustodial parent eligible for the Earned Income Credit?
A: Probably not. The Earned Income Credit (EIC) is a tax credit for people who work and earn income below a certain amount. There are particular rules a person must meet to be eligible for an EIC. Some parents may be able to receive an EIC if they have a “qualifying” child. Generally, noncustodial parents cannot claim the EIC on the basis of their children because the children do not live with that parent and consequently do not meet the residency test. If the custodial parent meets other requirements, he or she may be able to claim the EIC.
Whenever taxes and child support mix, it is usually a complicated situation. If there is a large sum of money involved, you are almost certainly better off speaking with a professional. For help preparing your taxes and understanding how child support affects your finances, you may consider contacting an experienced tax attorney.