Child custody arrangements and income are significant factors in determining both child support award amounts and income tax return obligations. Since custody, income, and child support are closely connected, child support responsibilities can affect a non-custodial 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. It's important for parents to understand what funds, (beyond simple wages and salary) 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.
Does the IRS consider child support to be income?
No. Although there is a relationship between child support and taxes, the IRS doesn't consider child support payments as taxable income. That means taxes for non-custodial parents who pay child support can't include deductions for the child support payments and, on the flipside, child support payments do not count as taxable income to the payee (custodial parent). The bottom line: when calculating your gross income to see if you're required to file a tax return, don't include child support payments made or received.
Does Form 8332 affect the Child Tax Credit?
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 non-custodial parent. In that case, the non-custodial parent would qualify for the dependency exemption and therefore the Child Tax Credit.
Refer to the Instructions for Form 1040 or the Instructions for Form 1040A index for Child Tax Credit for further details about qualifications and calculations.
If the non-custodial parent receives permission from the custodial parent to claim a child on his or her tax return, is the non-custodial parent eligible for the Earned Income Credit?
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, non-custodial 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.
Get Legal Help with Your Child Support and Taxes Questions
Whenever taxes and child support mix, it is usually a complicated situation -- whether you're a custodial or non-custodial parent. If there's a large sum of money involved, you're almost certainly better off speaking with a professional. If you need help knowing where to begin or are looking to hire legal counsel, find a family law attorney near you with experience in such matters.
