If you are considering or anticipating a divorce – here in California or in any other state – you should understand that a divorce will affect every part of your life, even including your income taxes.
According to the Census Bureau, over four million parents in the U.S. received child support in 2016.
If you are a parent, you’ll learn how the child support payments you make or receive are handled by the Internal Revenue Service.
You’ll also learn what does and what does not meet the definition of “child support,” and you’ll learn why – if you are a parent – the term “child support” needs to be precisely defined in your divorce settlement.
IN CALIFORNIA, HOW IS CHILD SUPPORT CALCULATED?
Normally after a divorce in California, child support is paid according to the California Child Support Guideline, a complex formula based on the parents’ earnings, the number and needs of the children, and the time that the children spend with each parent.
Every marriage is different, and every divorce is difficult. If you are divorcing or anticipating a divorce in southern California, seek individualized divorce advice from an experienced Long Beach divorce attorney – as quickly as possible.
While the rules regarding alimony payments were recently changed by the Tax Cuts and Jobs Act of 2017, the child support rules remain the same where federal income taxes are concerned.
The new tax rules regarding alimony will not go into effect until 2019, so those rules will not apply to any divorces that become finalized in 2018.
ARE CHILD SUPPORT PAYMENTS TAXABLE? ARE THEY DEDUCTIBLE?
A custodial parent pays no federal income tax on any child support that he or she receives. For non-custodial parents making child support payments, child support payments are not tax-deductible.
But there’s more. While the rules regarding taxes and child support seem simple enough, precisely defining what is and isn’t child support may sometimes be exceedingly difficult.
That’s the main reason why the term “child support” must be precisely defined – and what is and isn’t child support must be spelled out – in the text of your divorce agreement.
WHY IS THE WORDING OF A DIVORCE AGREEMENT SO IMPORTANT?
If the divorce agreement combines alimony and child support and characterizes the payments with a term like “family support” or “alimony,” no part of the payment will be considered child support by the Internal Revenue Service.
If you receive or intend to receive child support, you must be certain that child support payments are clearly characterized as child support in the wording of the divorce agreement.
Payments that are considered family support or alimony are taxable in 2018 for the 2017 tax year.
Beginning in 2019 for tax year 2018, as a result of the Tax Cuts and Jobs Act of 2017, alimony will be handled like child support – you won’t have to pay taxes on it if you receive it, and you will not be able to deduct alimony, starting in 2019, if you pay it.
To claim your child as a dependent, you must be responsible for half or more of your child’s financial support during a tax year.
CAN BOTH DIVORCED PARENTS CLAIM THEIR CHILD AS A DEPENDENT?
And that can make things complicated when married parents divorce, because both parents cannot claim the child as a dependent after the divorce.
The Internal Revenue Service cross-references tax returns to ensure that divorced parents only claim a child as a dependent when they are qualified to.
If the child lived with only one parent for more than fifty percent of a calendar year, IRS rules presume that is the parent who gets the exemption. However, if the parents agree, they may transfer the exemption to the noncustodial parent if either of the following pertains:
- The divorce agreement includes the custodial parent’s waiver of the right to the exemption.
- The custodial parent signs IRS Form 8332 waiving the right to the exemption, and the noncustodial parent includes a copy with his or her IRS tax return for the year.
The Internal Revenue Service can be very particular regarding IRS Form 8332. If the form isn’t complete, accurate, signed, and attached to the return, the IRS can and does deny the exemption to the noncustodial parent.
WHICH PARENT CAN CLAIM THE EXEMPTION FOR A CHILD?
When parents are unmarried, didn’t live separately through the final six months of the year, and/or have no written child support agreement, only the parent who is responsible for more than half of the child’s financial support during the year can claim the exemption.
When both parents contribute equally to the child’s support, the tax situation can get quite complicated. Details for parents in this situation are provided in IRS Publication 504, or you can consult your financial advisers or your divorce attorney.
After most divorces in the state of California, with several narrow exceptions, child support is paid until the child turns 18.
If the Internal Revenue Service has questions for you regarding child support or the dependent child exemption, where can you turn for help?
WHEN THE IRS HAS QUESTIONS, WHO CAN HELP?
You’ll need to consult with an experienced Long Beach divorce attorney who can answer your questions about the child support payments you make or receive and answer your questions about any other divorce-connected tax matter.
When the divorce process begins, whether your finances are affluent or modest, you must be advised by a knowledgeable divorce lawyer who understands fully the tax issues involved in the California divorce process.
Do not hesitate to ask your divorce attorney about any divorce-related financial or tax matter. Most family law attorneys deal with these matters routinely; they will be happy and able to address your concerns and answer your questions.
If you are divorcing in southern California, arrange a consultation with a divorce lawyer who can explain how the new IRS child support rules may affect you – along with explaining your other options and rights in a California divorce.
WHAT IS EVERY PARENT’S OBLIGATION?
Every California parent is obligated to contribute to the care of his or her children.
If you need help to obtain child support payments from your ex, or if you are not receiving the child support payments that were ordered by the court, contact a family law attorney at once.
Nothing is more important than your child. Let a lawyer help.