Key Takeaways
- Child support does not change either parent’s taxes. Period. It’s like a tax-free event.
- Claiming a child on your taxes CAN have some tax benefits, and parents can decide who gets to claim the kid
- Declaring a kid may allow you to deduct their medical expenses, claim the Head of Household status and many valuable Tax Credits
Why are child support taxes important for women?
According to the Census Bureau, 80% of custodial parents are women. If that’s you, you know how critical child support is to your financial picture. And as a result, who gets to claim the kid (and receive the tax benefits) often comes up for negotiation.
As a financial advisor for single women and moms, this makes me (really) nervous and slightly angry. Around 75% of single moms do not receive their full child support. But because you are the custodial parent, you still have to pay the bills. The tax benefits associated with claiming a child can help reduce your tax bill, which means more money to do that. This is especially true for the lower-earning spouse.
In my view, the tax breaks should always go to the parent doing the soccer laundry, and it’s very important not to sign away.
Can you write off child support?
No. Child support payments cannot be used to reduce the income of the paying parent on their tax return. There is no way to make it a tax deduction, and this makes sense. That income would be used to care for the kid whether the parents are married or divorced.
If someone insists you can write it off, they are thinking of spousal support payments (aka alimony), which changed tax treatment under the Tax Cuts and Jobs Act. Alimony payments are no longer tax deductions for the paying spouse and taxable income for the recipients. (Alimony is also called “spousal maintenance” and is very rare).
Is child support tax deductible?
No. As a general rule, child support is not deductible from either parent’s taxes.
Is child support taxable income?
No. Under federal tax law, no amount of child support received is taxable income. If you receive child support payments, you do not need to report it on your taxes, nor will you pay income taxes on it. That is also true for all state tax reporting systems.
Bottom line, there is no such thing as child support tax.
Who pays taxes on child support payments?
The parent paying child support already had taxes removed from that income when they earned it. This is just like if a couple were married: a parent makes income and pays taxes on it. Then they hand the other parent some money to buy groceries or diapers or a new nightlight for the kids, without any tax implications.
Child support and SNAP/WIC eligibility
In one of the most messed up corners of American politics, there is a strong relationship between child support payments and WIC/SNAP eligibility. When a parent receives child support payments, these are usually considered income for the purposes of calculating SNAP eligibility. This is true whether or not those payments are part of a custody and support agreement, court order, or just a handshake.
Child tax credits for divorced parents
Declaring a qualifying child on your taxes can help you qualify for tax credits. These credits can help reduce the taxes owed and even lead to a refund. Valuable!
Historically, noncustodial parents who pay child support or alimony payments (usually, Dad) would try to negotiate for the right to claim their kids. But in a world where alimony is rare and child support payments don’t always appear, I think tax credits should generally stick with the custodial parent.
Read our post on the best Tax Breaks for Single Moms.
Can the noncustodial parent claim the children?
Yes! Only one parent can claim the child for tax purposes, and the IRS will assume it’s the custodial parent. But parents who share custody (or even those who don’t) can trade or negotiate for the right to claim the kid on their return. And get the juicy tax credits!
Some divorces dictate this in their written separation agreement; others do not. If separated or unmarried parents do not have a divorce agreement, the Internal Revenue Service gives the custodial parent the right by default.
I strongly encourage divorcing Moms to NOT negotiate away this right. You can grant it on a year-by-year basis, but if you have minor children, please do not sign it away in perpetuity. Why? If he ghosts, you have to take him to court to get it back, and it is very valuable.
If the noncustodial parent wishes to claim the child on his/her return, then the custodial parent will have to give written permission to be passed along with the non-custodial parent’s tax return. This is called a dependency exception.
Important: The Dependency Exemption
In order to transfer a kid from one return to another (and the tax credits that might go with them), parents need to meet these three conditions:
- One or both parents provided more than half of the child’s total support for the year (e.g. grandma didn’t pay the family’s housing, food etc, for more than half the year, because then she might be able to claim the child as a dependent)
- One or both parents have custody of the child for more than half of the year (e.g. they didn’t live with grandma for more than half the year, because then she might be able to claim the child as a dependent)
- The parents are divorced, legally separated, or lived apart at all times during the last six months of the year
AND they need to submit Form 8332.
IRS Form 8332
Read this carefully: The noncustodial parent may only claim the dependency exemption if the custodial parent signs a IRS Form 8332, or provides a substantially similar statement. The non custodial parent need written permission to claim.
Form 8332 is called “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent” because the custodial parent is releasing their right to claim the kid. Do not negotiate away this right if you’re the custodial parent.
What can divorced parents deduct?
Parents may be able to get some tax benefits if they claim their child on their taxes. These include the Head of Household filing status, Child Tax Credit, Child and Dependent Care Tax Credit, education credits and Medical Expense Deduction. They can use these credits to help pay less taxes or even get money back from the government.
Read our deep dive on Tax Breaks for Single Mom, but here’s a quick rundown:
Head of Household Status
Head of Household is a filing status for single or widowed parents who have dependents. It’s beneficial because the IRS increases your standard deduction A LOT, and this reduces your taxable income by at least $6450.
It’s the biggest single mom tax break, and to qualify, you need a dependent. Read more about how women can choose the right tax filing status.
Child Tax Credit for Divorced Parents
The Child Tax Credit is also a boon to single parents who claim dependents: up to $2,000 per qualifying child in tax year 2022, which doesn’t start to phase out until your income exceeds $200,000 for Head of Household filers. Up to $1500 of that credit per kid is refundable, so it will increase your refund.
Child and Dependent Care Tax Credit for Divorced Parents
The Child and Dependent Care Tax Credit is one of the best tax breaks for single parents who pay for childcare. For tax year 2022, the maximum amount of care expenses you’re allowed to claim is $3,000 for one person, or $6,000 for two or more people. The percentage of your qualified expenses that you can claim ranges from 20% to 35%.
This credit also has a very high income phase out and goes to the parent who claims the child on their return. Check out our other post on how to easily document childcare costs for taxes and negotiation.
Education Credits for Divorced Parents
Similarly, if you have a dependent for whom you pay tuition or other expenses, you may be able to get the American Opportunity Tax Credit (up to $2,500 per student). This is a partially refundable credit, so if it reduces the tax you owe to zero, you can have 40% of any remaining credit (up to $1,000) refunded to you.
The credit is kind of a booger to calculate: 100% of the first $2,000 of qualified education expenses and 25% of the next $2,000 of qualified expenses.
The Medical Expense Deduction
The IRS allows each parent to deduct the medical expenses they paid for their child on their tax return, even if the other parent claims the child as a dependent.
The IRS Publication 502 sayeth: “For purposes of the medical and dental expenses deduction, a child of divorced or separated parents can be treated as a dependent of both parents. Each parent can include the medical expenses they pay for the child, even if the other parent claims the child’s dependency exemption…”
The support, custody and separation rules for form 8332 (above) also apply in this case.
Unfortunately, there are additional requirements that make this an unlikely deduction for a single mom who can take the head of household deduction: To claim any medical expenses as deductions, you must itemize your deductions, which only makes sense for about 10% of filers AND you can only claim a deduction for medical expenses that exceed 7.5% of your adjusted gross income (AGI).
Earned Income Credit
The last credit that can reduce your federal tax bill is the Earned Income Tax Credit or EITC. Qualification for this credit depends on your filing status, income, and the number of children that you claim as dependents. If you meet all the criteria, this is a very valuable tax credit — up to $6,935 in 2022.
State Specific Child Tax Credits
In addition to the federal Child Tax Credit, some states might offer their own credits for dependents. Whether you’re allowed to take advantage depends on your situation and that of your former spouse or significant other. Generally speaking, if you are able to claim that child as a dependent for federal purposes, then you should be able to take advantage of any state-level credits as well.
Conclusion
I’m not here to give legal advice or tell you how to structure family support after divorce.
But I will advocate (strongly!) that the right to claim a dependent is very valuable. At very least, avoid negotiating away that right in a custody agreement, separation instrument, or divorce decree.
Tax laws default to benefit the parent the child lived with for a reason: they provide most of the financial support to their dependent children.
In my view, these parents deserve an even bigger federal tax refund and a spa day.
