Is Child Support Tax-Deductible for San Diego Parents in 2012?

The tax laws which govern San Diego taxpayers change every year. Many parents are unsure as to whether the child support paid is tax deductible or not tax deductible. In San Diego, under income tax regulations as of the preparation of this article, no taxes are payable on child support by either the spouse who receives it or the child who is the beneficiary. However, taxes are payable on payments made for child support by the parent who makes them and the child support payments cannot be deducted by the payor on their tax return. In this, the child support differs from spousal support which is {normally} tax-deductible by the spouse making the payments, but taxable by the spouse who benefits. Keeping this in mind, the wording of child support in the marital settlement agreement should be in accord with the law and not contrary to the law. “Uncle Sam” will apply the tax laws per their Code and it is very important not to file a tax return which is erroneous. In addition, many San Diego parents may believe they are entitled to a deduction when they may not be.

To be considered child support, payments made for this purpose must be designated as such by San Diego Court Order or in the separation or divorce agreement itself. If child support forms part of alimony or family support, or is not separately designated and quantified, then the analysis by the IRS may change if not deemed as child support from an income tax point of view. This would mean that the recipient spouse might have to pay tax on the whole or part of the amount because taxes are payable by the recipient on alimony or family support in most situations. The recipient spouse will be paying tax on child support included in the alimony, which under normal circumstances would be non-taxable. The tax consequences of whether child support, spousal support or “family support” can be very complicated. “Family Support” is most complicated since the parties can agree but the IRS can take a different position.

As a generally accepted practice, in any tax year the parent who has more than 50% of the custody gets to make a dependent claim on the child as the “custodial” parent. There are not any problems on this issue where the couple is married and living together. The problem arises when the parents separate or divorce, where the dependent exemption is claim able by only one parent or when both parents claim the same child as a dependent. This often leads to an audit of both parent’s tax returns. While divorces and legal separation and paternity cases are very contentious, it is a rare case when the parties welcome a tax audit of the other or themselves. An issue arises when the “non custodial” parent is granted the dependency exemption in the disso master calculations as the “custodial” parent needs to sign a form which is filed with the IRS to allow the dependency exemption. Many times, asking the Judge for this Order or placing within the marriage settlement agreement may avoid future court hearings, audits and other time consuming and expensive procedures.

If parents have a separation agreement, a maintenance agreement, or a written divorce decree and have lived apart for the last six months of a calendar year, then special rules may apply on a dependent exemption. You could discuss this with your divorce attorney or tax consultant since this is a complex issue.

If both parents divide child support equally the situation becomes complex. IRS Publication 504 has guidelines on how to deal with such a situation. Normally, however, in San Diego Superior Court, the Court will calculate the child support based on who has the dependency exemption. Normally, if the payor has the dependency exemption, the child support will increase because the net income increases due to the dependency exemption being claimed and the net income of the payee decreases. Again, normally, if the payee has the dependency exemption, then the child support will decrease because the net income of the payor has decreased and the net income of the payee has increased. The analysis of which is better for either {or both} parents can be complicated and requires careful analysis.

Attorney Roy Doppelt, from this two-decade old plus San Diego attorney, is conversant with many facets of family law which includes child custody, custody arrangements, and general child-support related taxation issues. The firm’s legal performance goal is to far exceed the expectation of its clients. The firm also practices in divorce, legal separations, paternity issues, spousal support, visitation rights, alimony, and other aspects of family law.

As an attorney who practices in San Diego, to ensure compliance with IRS regulations, we inform you that any tax advice contained in this article and all articles and information on our website, either past or future, is not intended to be used and cannot be used for the purpose of avoiding penalties under the Internal Revenue Service Code or promoting, marketing, or recommending to another party any transaction or matter discussed above.

Always consult with a Certified Public Accountant and a link can be found on the firm’s website for the CA CPA organization.

Should you like to discuss your child custody situation and relevant tax implications with this family law firm you could avail of a free 30-minute virtual consultation.