Child Support Tax Considerations

 Posted on May 22, 2015 in Child Support

Taxes affect nearly every aspect of our lives, and divorce is no exception. It is important that you consider the tax implications to all of the decisions that go into your divorce, especially if there are children involved. Child support, custody, and other issues surrounding the children can have a major impact on your future taxes.

Child Support and Dependency Exemptions

Child support has no effect on your taxes. The parent sending child support cannot deduct payments and the parent receiving the support does not count it as income. However, a child can be claimed as a $3,100 dependency exemption that can be worth as much as $1,000 to taxpayers in the upper tax brackets.

Typically, the custodial parent is allowed to claim the child as a dependency exemption. However, if the custody is split then both parents may claim the child as a dependent so long as the final divorce decree claims them both as custodial parents. If the child is part of a joint custody, then the parent who spends the most time with the child gets to claim them as a dependent for taxes. In addition, dependency exemptions can be transferred between the parents through agreement for any specified amount of time.

Child Tax Credit

Whichever parent claims the child as a dependent also gets to benefit from the Child Tax Credit. This is a dollar for dollar reduction in that parent’s tax liability. It can amount to thousands of dollars in taxes saved annually, although the actual value varies from year to year. The Child Tax Credit is also phased out a bit at the higher tax brackets, so it is important to refer to a family law attorney when figuring this credit into a divorce decree.

Child and Dependent Care Credit

A custodial parent may also claim an additional credit on their taxes if the parent needs child care for their young or disabled child. This tax benefit ranges from 20 percent to 35 percent of the child care expenses in cases where the child care is needed for the parent to stay employed. Some restrictions do apply to this tax credit; for example, the dependent care credit cannot be transferred between parents like the dependency exemption.

Child’s Medical Expenses

Even if a parent does not claim the child as a dependent, the medical expenses of the child can be deducted from taxes. Any medical expenses that exceed 7.5 percent of the adjusted gross income of the parent may be deducted for tax purposes. This can come in handy for parents where one uses the dependency exemption and the other deducts medical expenses to even out the total tax liability for the child.

Call a Family Law Attorney

If you have questions about how a divorce might affect your taxes or any other questions regarding family law in Chicago or the western suburbs our experienced DuPage County family law attorneys at Davi Law Group, LLC are here to help. Call the office or contact us today for a free and confidential consultation of your case.