In California and federally, child support is not taxable nor is it tax deductible. This ensures that the child can completely benefit from the resources paid through child support and so that the parent who is paying child support doesn’t pay extra child support as a tax incentive.
Child support payments are not tax deductible in California. The non-custodial parent is unable to offset their child support payments by claiming them as tax deductions.
By making child support payments not tax deductible they are tax neutral, which is of great benefit to the child for whom the child support order was for in the first place. This is because their custodial parent won’t have to pay income tax on the child support they are receiving, and the child can receive a greater benefit from the payments with it not being reduced by taxes.
The income from child support is not able to be claimed as a tax deduction against their gross income. It would make more sense for child support to be able to be claimed as a tax deduction for the paying parent, but that also is not a thing.
However, what is tax deductible is if you are paying spousal support, or as it is more widely known alimony. On the flip side that also means that alimony is taxed as income for the recipient.
Child support does not reduce taxable income. Depending on the year the court order happened, alimony payments could be tax deductible federally and in California but not child support payments.
Child support payments are tax neutral. Because they do not offset taxes for the paying parent, they have the hidden benefit of not being taxed as income for the receiving parent. This means that the child(ren) for who the payment is for can receive the full benefit of the money coming their way.
In many a divorce agreement, it is determined that the custodial parent is the parent who can claim the child tax credit for tax purposes. However, it isn’t unheard of for a noncustodial parent to get the tax benefit to offset the amount of child support they are paying.
Being able to claim the child tax credit is a good thing to have determined in your divorce settlement as it can directly affect your net income. Make sure to bring it up with your divorce attorney, as you want anything and everything determined and written up.
If you are not fortunate enough to have a written agreement of who can claim a child as a dependent, you are still in luck. The general rule that the Internal Revenue Service (IRS) follows is known as 26 U.S.C Section 152. It states that the parent who has the child for the most amount of time during the year is able to claim the tax exemption. As we all know, this is typically the mother of the child as they most frequently receive primary physical custody.
If the other parent provides over 50% of the child’s support they are actually entitled to the tax exemption. However, that parent will need to include the Release of Claim to Exemption for Child of Divorced or Separated Parents (IRS Form 8332) with their tax return. That form will also need to be signed by the parent provided less than 50% of the child’s support. If the parent providing over 50% of the child support neglects to submit the form, they are liable to be questioned by the IRS to prove that they in fact provided over 50% of the child’s support.
Like most tax laws it is complicated to determine what is actually the law, and spousal support tax deductions in California are no exception. Depending on when your first spousal support order or judgment was completed is the key factor here.
If your first spousal support judgment or order was completed before January 1, 2019, then if you pay spousal support you can deduct the payment on your federal or state income tax forms. If you are receiving spousal support, then you must report the payments as income on your California state and federal tax forms.
For example, if you are receiving a $5,000 a month alimony payment you would have an additional $60,000 reported for the tax year. It is considered income and must be reported as such.
On the other side of the coin, if you were paying $5,000 a month to your former spouse it is tax law that you could deduct that from your taxes for the calendar year. Which would greatly affect your income tax returns.
If your first spousal support order or judgment was completed on or after January 1, 2019, then the laws for California and the federal government differ. Federal income taxes, if you receive spousal support payments you should not report the payments as income. If you are paying spousal support you are unable to deduct the payments from federal income taxes. However, California law is that you can deduct payments and have to report receiving support as income on your tax documents.
This still is of benefit to the paying party in California, as they get some tax relief from their alimony payments. However, the receiving party will have an increase in their state income tax payments as it is not a tax-neutral situation like child support.
There is no doubt that divorce can be messy. Make sure your divorce settlement has your financial obligations as clear as possible. This will set you straight with the IRS, future questions you may have about child support or alimony payments, and set you up for success in your specific tax situation.
This article is neither tax advice nor legal advice. Consult with family law attorneys for your specific circumstance.