Is Child Support Taxable?

What do women not know about child support? And how does it relate to taxes? Most women know that if they are the custodial parent, they are entitled to some amount in basic child support every month. But few understand the potential tax implications associated with child support and spousal maintenance.

On the federal level, child support is neither taxable income to the recipient nor is it deductible for the payer. This is because child support is considered a legal obligation for your child’s care, and the IRS does not want to reward parents for meeting their basic obligations. The IRS does not require that either the payer or recipient report the child support payment as income or expense. In New York, the state follows the federal code, and similarly, child support is neither tax-deductible to the payer nor added to the recipient’s income. Again, the reason is because child support is a parental obligation that parents are supposed to pay. (The government does not want to be on the hook to support YOUR children.)

However, who claims the child as a dependent on tax returns is another issue.

Child Support in Your Divorce Agreement

It is a point for further negotiations when working out a settlement agreement. Many couples fight over this so that they can potentially claim the child tax credit (CTC), the additional child tax credit, and the non-custodial parent earned income credit. You should always speak to an accountant to determine whether you are eligible for any of these credits, as they can potentially save you thousands of dollars annually.

KEY TAKEAWAY: The more children that you have together, the more money is at stake with these child credits.

In many New York divorce agreements, the parents may rotate claiming the child as a dependent on their tax returns, even if the child is residing primarily (for six months or more with one parent) so that both parents can obtain the tax benefits of claiming the child as a dependent on their tax returns. The thought is that even if the child is not residing with the non-custodial parent, as long as that non-custodial parent is paying child support regularly, they should still be able to benefit. Personally, I have never thought this was fair because to me, dependency status should be reserved for the custodial parent, who is responsible for the bulk of the day-to-day expenses.

PRO TIP: If you have multiple children, always ask to claim the youngest child as a dependent on your returns so that you can take advantage of claiming them as a dependent for the longest amount of time. Consider offering your ex another child who to claim as a dependent so that they receive fewer years of benefit from their claim of having the child as a dependent.

Read “Questions to Ask a Divorce Attorney at a Consultation” to discover what else you should be exploring as a woman dealing with divorce.

Is Spousal Maintenance Taxable?

In New York, spousal maintenance was previously considered to be income to the recipient and tax deductible to the payer before December 31, 2018. This caused a massive income shift to the less monied spouse and a substantial benefit to the more monied spouse on the hook for paying the maintenance.

After December 31, 2018, the law in New York State changed and it became a neutral tax event. How will you know what provision applies to your situation? You need to look at your Stipulation of Settlement and see when it was signed. If it was signed before December 31, 2018 the former law applies. If it was signed after December 31, 2018, spousal maintenance is no longer considered taxable income to the recipient or deductible to the payer in New York State.

What Happens if a Spouse Wants More Custody Time if Only to Avoid Child Support?

One of the key motivators is that the other side has figured out that if they become the “custodial” parent, then the other side will owe them a monthly amount in basic child support.  This happens frequently, and most courts are well aware of this potential motive. The non-custodial parent may file a motion or petition to request a modification of the Divorce Agreement or the parenting plan, which already enumerated the custodial parent, and the amounts of parenting time that both parents have with the child. In New York, if the non-custodial parent is now seeking to be the custodial parent, they must allege a “substantial change in circumstances” and prove that it is in the “best interests of the children” for a change in custody to be effectuated. Either both sides must consent to this, or there is usually a trial to determine whether a legitimate modification is warranted.

You may wish to read “What NOT to do During Divorce: 7 Must-Knows.”

What are the Tax Implications if Your Ex- Spouse is Delinquent with Child Support?

Late child support payments known as “arrears” are not tax deductible to the payor and not counted as income towards the recipient. If your Ex has arrears and has not been regularly paying the full amount in child support, you should consider taking them to Court for the arrears by filing a motion for contempt or a violation petition.

PRO-TIP: Always keep detailed spreadsheets with the amounts, dates of the missing basic child support payments, late payments, lack of payments and reduced payments for any basic child support.

You must also keep track of arrears for add-on expenses (tuition, summer camp, unreimbursed medical expenses, extra-curricular activities, religious classes/parties/events, tutoring, SAT prep classes, college application and college prep classes). On this list you should include the date of service, the activity that you are seeking reimbursement for, and the amount the other side owes. Total up everything. Do not wait years to claim arrears as they add up very fast. You also cannot claim arrears if the other side was not on notice of the expenses. You must prove that you showed the other side the payments that you are seeking in a timely fashion.

Read “41 Things to Remember When Coparenting with a Narcissist,” in case it applies to your story.

You may claim retroactive arrears, but usually the claim for arrears owed will only go back from the date that you filed your violation petition or contempt motion with the court. The sooner you file, the better. Stay organized. Consider scanning all of the unpaid receipts and invoices into one PDF document dated chronologically. The Court does not want to take the time to review disorganized receipts/invoices, etc. As an attorney, there is nothing worse than having to scour through years’ worth of pages that are disorganized and try to make sense of what was paid, what was not paid, and the dates of all transactions. You will also save money in legal fees if you are organized. Consider reading this divorce checklist for staying anchored, organized, and moving forward.

What Happens if the Woman is the Breadwinner When It Comes to Child Support?

Again, it does not matter who the breadwinner is when it comes to who receives child support and who must pay child support. What matters is who has primary residential custody of the children. If you are the custodial parent, the other side must pay you basic monthly child support unless you agree in writing to waive child support.

In New York, if you are the more monied spouse, you can also agree to have the other party pay you more or less than the presumptively correct amount of child support, which is governed by the Child Support Standards Act (CSSA). I would never advise any woman to waive basic monthly child support payments or add-on expenses. In New York, a minimum basic child support amount of $25.00 is still the law, so the basic child support cannot be $0.00 a month.

I will say that many women who sign to waive child support wish to retain me to seek a modification. They are angry that their friends receive child support and spousal maintenance. They feel stupid that they agreed to waive it. Most of the time, they waived it to be nice to their soon-to-be ex and they were not represented by an attorney.

This is a potentially FATAL mistake that if not only your future, but also your children’s future, as you have no idea what the future will hold. God forbid you have an accident or become not healthy and are unable to work and support your children.

Always factor into the potential “future unknown or worst-case scenario” before you waive child support.

However, if you have considered all of the above advice and are the ultimate power player in the relationship, have ample funds at your disposal, you still wish to consider waiving basic child support, then you should try to negotiate to have the other side pay more than their pro-rata share of add-on expenses. Always keep in mind that add on expenses are what accumulate very quickly — especially as your child ages and has more expenses. Alternatively, you could consider negotiating for more in equitable distribution (think ownership of homes, a larger % of your ex’s business interest or a higher amount of your Ex’s retirement benefits, etc.) if you are considering waiving child support. Please do not waive basic child support for nothing in return.

NOTES

A zealous advocate for her clients, Meredith L. Singer is an experienced NYC divorce attorney who strives to keep legal representation affordable and accessible.

If you live in New York City or Brooklyn, schedule your legal consultation with Meredith by emailing her at meredithsingerlaw@gmail.com

You can also visit her website here.

 

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