In divorce cases falling under the broad “family law” umbrella, courts consistently prioritize the child’s well-being in their rulings. Therefore, as part of the divorce settlement, the family law court often includes a child support order. With money flowing into or out of the parents’ bank accounts, many often inquire about taxation.
This article addresses the three most common questions about child support taxation. Have you ever wondered about any of these questions as well?
Is Child Support Taxable?
According to national and state tax laws, custodial parents who receive child support payments should not report those payments as their taxable income. In other words, you don’t owe any taxes on the child support payment you may receive.
This is very good news for the custodial parent, as it allows them to use the total amount of child support to cover the child’s expenses without any tax implications.
Is Child Support Tax Deductible?
If you are the non-custodial parent, the situation might be slightly different. Some parents mistakenly believe that since child support effectively reduces their disposable income, it should be treated as a deductible expense. However, the IRS, as well as the SC state, consider child support payments as personal expenses. Hence, they aren’t tax-deductible either. In other words, the paying parent cannot reduce their taxable income through child support payments.
Practically speaking, child support payments do not provide a tax benefit to the paying parent. That being said, under some conditions, the paying parent can still qualify for IRS deductions and credits related to their minor children. It is recommended that you consult with a professional family law attorney or a CPA to determine how to take advantage of these.
If Child Support Isn’t Taxable, What about Spousal Support?
By now it could have already been inferred that the IRS’s tax code concerning the expenses of raising a child prioritizes the child’s well-being. This policy directly applies to the above question, so let’s first explain the difference between child and spousal support.
Child support is paid to the custodial parent and is used to finance the child’s basic necessities, such as food, clothing, medical care, etc. Failure to pay child support on time could prompt enforcement action. On the other hand, spousal support, also referred to as alimony, is paid to the estranged, financially disadvantaged spouse to sustain a lifestyle comparable to that experienced during the marriage.
Unlike child support, which is neither taxable nor tax-deductible, alimony takes a different approach. As alimony is designed to primarily help the parent rather than the child, it is generally taxable income for the recipient and tax-deductible for the payer. Thus, the authorities ensure adequate untaxed financial support for the child, even if it “compromises” the custodial parent’s well-being.
A Pro Tip
Whether you are paying or receiving child support in South Carolina, keeping detailed records and documentation of all payments made or received over the tax year is crucial. While these amounts don’t directly impact your tax returns, having this paperwork on hand can help resolve any disputes that may arise about meeting your obligations.
If a missed payment results in your wages being garnished, keep records of those garnished amounts as well. The Child Support Enforcement Division can provide annual statements documenting all payments if needed.
Have A Loyal Family Law Attorney by Your Side
Going through a divorce can be contentious, mentally, and emotionally draining. Facing taxation misunderstandings on top of that only adds to the complexity. This is why having a dedicated and professional family law attorney by your side is crucial.
With an experienced family lawyer supporting you, you’re never alone throughout the divorce process. They can answer all your questions, clarify misunderstandings, and propose tailored strategies that prioritize your needs as a parent while also protecting the best interests of your children.
At Bluestein Attorneys, our team possesses the expertise and compassion to provide sound legal advice and robust representation in family law matters. If you are confronting a difficult family situation requiring court intervention, please call us today at (803) 779-7599 or contact us online.
