Divorce Guide

Child Support and Taxes

When couples with children get divorced, the non resident parent has to pay child support or maintenance money on a regular basis for expenses to be incurred on child care. Child support and taxes are closely related. If you receive or pay child support then it greatly impacts your taxes.

UK Government encourages the concept of child support as it is meant for the well being of the child. After divorce or separation of the parents the child stays permanently with one parent. However this does not mean that the other parent does not have any responsibility for the child. The court orders the non-resident parent to pay child maintenance. The amount to be paid as child support depends on the non-resident parent’s income and the child’s requirement.

In order to encourage the concept of child support, the Government has made child support completely non taxable. Payments classified as child support are non taxable to the payee spouse and non tax deductible by the payer spouse.

The parent making the child support payment can’t deduct it from income and the parent receiving the payment can’t add it as income. However, child support and taxes need to be analyzed carefully as all child support does not qualify under non tax bracket.

1. Parents who are legally divorced or separated
2. Live apart at all times during the last six months of the calendar year
3. One of the parents who provide more than half the total child’s support for the year
4. The parent who has the custody of the child for more than half of the calendar days in a year.

According to the rule, the custodial parent, or the parent with whom the child stays for more than half of the year is directly eligible for tax exemption. In such cases the child is considered a dependant on the custodial parent who takes care of his majority of the needs and provides emotional support.

A non custodial parent can claim tax exemption only with the consent of the custodial parent. In many cases a custodial parent does not avail the benefit of tax exemption and leaves it for the custodial parent.

This is only possible if the custodial parent makes certain declarations. The custodial and non custodial parents enter into an agreement that has one of the following clauses:

1. The custodial parent declares that he or she does not claim the child as a dependant
2. The decree of divorce that states that custodial parent will not claim tax exemption for the year and the non custodial parent produces the document at the time of exemption
3. If the non custodial parent has paid at least $600 as child support and claims the child as a dependant.

In order to avail tax exemption by the non custodial parent the form 8332 needs to be filled and duly signed by both the parents. However, you must remember that under no circumstances the IRS allows to split the exemption.

Child support and tax is a complicated issues and a professional’s advice can help you benefit in terms of tax exemption.

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