Divorce, Child Support, & Taxes
Divorce has a tremendous impact on your finances for years to come — and taxes can significantly impact those finances. Tax season is coming, so let’s take some time to review a “divorce and taxes: topics: child support.
We will answer the two biggest questions in divorce, child support and your taxes:
- Can I deduct child support payments on my taxes?
- Do I have to pay taxes on child support?
Read: Tax Basics for Divorce
Read: Divorce, Retirement Accounts, & Taxes
Child Support & Taxes
The key thing to know about child support is that it doesn’t impact either parent’s taxes. In other words, the parent who pays child support does not receive a tax deduction. And, the parent who received child support does not pay taxes on that child support.
It follows then, that . . .
Can I Deduct Child Support on My Taxes?
No. Child support is “tax neutral.” You cannot deduct child support payments you make from your taxable income.
Do I Have To Pay Taxes on Child Support?
No. Child support isn’t taxable to either parent. Child support you receive isn’t considered income to you from a tax perspective.
How is Child Support Calculated?
The Connecticut Child Support Guidelines use the parents’ combined net income, not the parents’ gross income.
What is Gross Income for Calculating Child Support?
“Gross” essentially means “total.” Salary, commissions, bonuses, pension income, retirement income, and trust income can all be included in a parent’s gross income.
What is Net Income for Calculating Child Support?
For child support, net income is defined as “gross income minus allowable deductions.” That means that courts take a parent’s gross income and deduct federal taxes, state taxes, Social Security, etc., and mandatory expenses like medical insurance premiums and mandatory retirement contributions. That number is considered the parent’s “net income” for child support purposes.
Calculating Child Support
Both parents’ weekly net incomes are combined, and the Connecticut Child Support Guidelines then calculate a percentage based upon Connecticut’s income shares model, and how many children the parents have. Each parent’s support obligation is determined by calculating the percentage that each parent contributes to the combined net weekly income. The amount calculated for the custodial parent is retained by that parent and presumably used for the support and maintenance of the child. The amount calculated for the noncustodial parent becomes the presumed support order to be paid to the custodial parent.
Read: How Is Child Support Calculated in Connecticut?
Am I Allowed to Claim a Tax Exemption for My Children Post-Divorce?
The general rule is that the custodial parent is entitled to the exemption for children.
But what about families with a shared parenting plan? Well, that’s when creative lawyering comes into play. Sometimes, one parent claims one child and the other parent claims the other child. Sometimes parents trade years. The value of the exemption for children varies significantly depending on income, so sometimes the exemption is more valuable to one parent than it is to the other parent.
Read: Is There Child Support If We Have Shared Physical Custody?
As with all issues in divorce, when it comes to taxes, we need to know your goals. Once we know what matters most to you, we design a legal strategy to move you towards it.
Our first step at Freed Marcroft, the Goals & Planning Conference, is designed to get to the heart of your problem and unveil your true goals. Then, we take those goals along with the facts of your case and analyze them so that we can present you with recommendations and options on how to move forward.