When it comes to your divorce settlement, you may be on the hook for certain types of alimony and support payments once the judge issues a ruling. If that’s the case, you will want to have all of your finances in order, and if possible, discover where you might be able to save some money along the way.
Your tax situation will be changing now that you are no longer married, and as such, you may ask yourself an important question: Is child support tax deductible?
Let’s answer that question below and discover where you might be able to get some other tax credits along the way.
Yes or No: Is Child Support Tax Deductible?
The short answer to the question “Is child support tax deductible?” is a simple NO.
While there are many deductions you might be able to find on your tax returns through your own business or private investments, the money you pay as child support does not count toward your documentation at the end of the year.
This may sound disappointing, especially given your potentially smaller expendable income now that you must dedicate a court-mandated amount for your child support payments.
Fortunately, there are some other options to find tax credits regarding your child.
Claiming Your Child as a Dependent
Although child support tax is not deductible, you may still be able to list your child on your tax return as a dependent, which will make you eligible for different deductions.
To start, you need to determine if your child is eligible to be listed on your tax documentation as a dependent. They must meet all of the requirements listed below:
- Be a U.S. citizen, U.S. National, U.S. resident alien, or a resident of Mexico or Canada
- Be under the age of 19, or under the age of 24 if there are a full-time student
- If they are disabled, there is no age requirement.
- Living with you for more than half of the taxable calendar year
- Cannot provide more than half of their own support throughout the taxable calendar year
If all of the requirements above are met, you can list your child as one of your dependents on your income tax returns.
This doesn’t mean you report child support directly on your 1040. Even if you itemize every single deduction, child support payments are not included in these terms.
To qualify as the parent who receives dependent status from the child, you must fulfill the obligations in the list below:
- You have provided more than half of the total support for the child throughout the year.
- You obtained and held custody of the child for more than half of the calendar year.
- You have divorced, lived apart from, or separated from your spouse for at least the six months preceding the filing of your taxes.
Should all of these obligations be fulfilled, the other parent can claim a dependency exemption if any of the following rules are true:
- The parent with custody of the child signs off on Form 8332, known as the Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. The other parent will attach this form to their tax forms.
- The parent who does not have custody will attach an agreement stating that the other parent can claim custody under any condition, the years that the child can be claimed, and that the parent who own primary custody will not seek the dependency claim for these years.
Claiming Dependency with Joint Custody
If your divorce spells out who gets primary custody, the parent who obtains the child will be legally granted dependent status if the child passes the standards mentioned above.
If there is joint custody, the rules for claiming the child as a dependent get a little more complicated.
In some instances, divorced parents arrange a perfect split of custody, each taking half of the child’s time. This doesn’t mean they have anything written out in advance when it comes time to prepare to file tax documents.
The problem lies with the documentation itself – even if you have an agreement that you are both equal partners in child custody, only one parent can claim the child as a dependent.
One option in this situation is for each parent to take turns in alternating years, claiming the child one year and granting the dependency to the other during off years. This can extend to having multiple children and can work out even with an odd number.
If, for example, you had three children before the divorce, you could claim two dependent children while your ex-spouse claims the other. Next year, you can switch and give them the bigger return.
Other Tax Breaks for Single Parents
Even though you may not have received the answer you wanted to “Is child support tax deductible?” there are many other options out there for single parents who wish to receive tax breaks.
We’ll check out some of these below, and you can decide which of them work best.
Head of Household
If you file as the head of your household, it means you are the primary caregiver and provider. This means you will pay fewer overall taxes before you even get into exemptions and breaks.
If you are unmarried on the final day of the year, provided more than half of the funds needed to maintain your home, and your kids live with you for more than half of the year, congratulations!
You are the head of the household, and this gives you a standard deduction just under $10,000.
Child Tax Credit
The child tax credit isn’t quite the same as an exemption. The credit is subtracted from the total amount of taxes that you owe directly to the IRS, and thanks to credits, you may end up saving quite a bit when it comes time to file your return. For you to qualify for this kind of tax credit, your child has to be under the age of 17 by the December 31.
On top of this, if the amount of the tax credit is more than what you owe to the IRS, it could be possible for you to claim the Additional Child Tax Credit, which grants you a refund for the amount of the actual credit you didn’t need to apply toward the amount you owe.
Earned Income Credit
Made primarily for lower-income taxpayers, this credit helps working families earn back a little more while they support their household.
It’s possible that you don’t earn enough money to be required to pay taxes, and if that’s the case, you could still be eligible to receive the Earned Income Tax Credit (EITC).
Keep in mind that if you claim the EITC or the Additional Child Tax Credit (ACTC), your refund is guaranteed to be held until at least February 15 after you have filed.
Child Care Credit
If you are not the primary caregiver for your child while you were searching for a job or simply working at your office, it could turn out that you are eligible for dependent child care expenses. To earn this credit, your child has to be under the age of 13 for some portion of the year.
Furthermore, whoever was responsible for your child’s care cannot be the other parent, or someone that is eligible to claim you as a dependent on their own taxes. This disqualifies parents who stay at home with their children or anyone who is currently between jobs.
Tiebreakers for Tax Credits
Let’s say you and your ex-spouse cannot come to an agreement on who claims the child as a dependent, and the statistics don’t help when looking at your income, earnings, and any other financial support that might make a judge rule in your favor.
What do you do?
If both parents are able to claim the child based on dependent qualifications, the parent with a greater adjusted gross income (AGI) is the one who will earn the right to claim the child on their returns for tax purposes. The same goes to two non-parent caregivers if the child is not their own.
If it turns out that only one of the two people caring for the child is actually a parent, the dependency defaults to the legitimate parent of the child.
Taxes and Your Child
Now that we have reviewed a significant amount of information regarding the answer to “Is child support tax deductible?” you can hopefully rest a little easier when going through your proceedings.
Divorce is a stressful time period, and the last thing you need keeping you up at night is the worry that your income may not be enough to care for one or more of your children.
With the proper research and careful reading of the number of credits and breaks available, you might discover something in your tax return that can give you the financial boost you desire on your returns.
Pay close attention to the IRS website regarding deadlines so that you don’t end up forfeiting your return, either!