Tax matters related to child support funds

Because child support is an important issue for many Texas families affected by divorce, the income tax season can be a time of uncertainty, especially for those facing this consideration for the first time. Of nearly $33 billion owed in child support in 2013, approximately $22.5 billion was actually paid. While child support is a major factor in household budgets, it plays no role on tax returns. The individual who pays cannot deduct the payments, and the parent who receives this form of support does not need to report it as income.

The area in which children can affect the tax returns of parents after divorce is in relationship to tax deductions for dependents. A custodial parent normally has the right to claim a dependent child on their taxes, which can provide for child tax credit benefits as well. A non-custodial parent might feel that they should have the right to claim a child, especially if they are contributing the majority of a child’s support. If an agreement is reached to allow the non-custodial individual to take the deduction, IRS Form 8332 needs to be signed by both individuals and included with the claiming parent’s return.

An ideal time for deciding tax deduction matters is during negotiations before the conclusion of a divorce. Parents might consider seeking a rotating schedule for claiming, which could be ordered based on the proportion of support each party provides. Additional tax implications might be addressed during this time frame as both parties consider how property division options will impact them at tax time.

Parents who are dealing with financial challenges that affect their ability to pay child support could find that non-payment affects their tax return because of garnishment. If support obligations cannot be met because of financial hardship, it may be helpful to talk to a family law attorney about seeking a modification of the order.