Child Custody/Child Support – (248) 588-3333 – Tax consequences of Child custody and Support
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The Effect of Child Custody and Support on Taxes
How will child support payments affect my taxes?
Unlike spousal support, child support payments do not count as income for the receiving parent. Likewise, they are not deductible from your (the paying parent’s) taxable income. This is mainly because those payments are not meant for the benefit of the receiving parent (it’s for the child) and is considered an obligation of the paying parent. Although on the surface it may look like this rule favors the receiving parent (usually the mother), this is not really the correct way to view child support.
How will child custody affect my taxes?
Having physical custody of a child allows you to claim them as dependents when filing taxes. Claiming dependents has the following tax benefits:
- Allows you to file as a head of household
- Allows you to claim the child tax credit or $500 non-refundable Dependent tax credit
- Allows you to claim the credit for child and dependent care expenses
- Allows you to claim a higher earned income tax credit
- Allows you to exclude dependent care benefits from your taxable income
Once again, this looks like a substantial benefit to the parent that gets physical custody. However, it should still be noted that the parent is incurring expenses to care for the needs of those children. However, if that parent were able to find ways to reduce the expenses for providing for the children in their custody without undermining the wellbeing of said children, then the associated tax benefits might prove to be profitable.
What if we share joint custody? Can we still claim dependents and the associated tax benefits?
You can both claim the children as dependents as long as you both file jointly. Unfortunately, a divorce couple may only file jointly for the last year that you were still married. After that only one of you will be able to claim the children as dependents. If both of you attempt to do so, the IRS will only allow the parent who has spent the most time with the children to claim the dependents and the associated tax credits.
This is a rather unfortunately designed system that is set up in a way that creates economic tension between the parents and result in competitive or adversarial behavior. A better system would somehow split the benefits between the parents but that is not the system we have now. It would be highly advisable for any parents with joint custody to acknowledge this disparity and strive to come to a private arrangement that shares the benefits of the tax system and promotes harmony between them for the good of their children.
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