Parents who pay or receive child support for a dependent child often have questions about the tax implications of custody and support. Normally, a married couple who file a joint return are able to claim their child as an exemption on their tax return. They are able to deduct the statutory amount allowed by the Internal Revenue Service (IRS) from their income, thereby reducing their taxes. In addition, they may be able to utilize the child tax credit. The matter becomes complicated if the couple is divorced or not living together, and the child resides part of the year with each parent.
Can Both Parents Claim the Dependency Exemption?
Since Florida does not have a state income tax, this article will focus only on federal tax issues. The question of which parent can claim the exemption when they are divorced or do not live together is addressed in Internal Revenue Code (I.R.C.) Sec. 152. According to that section, the general rule is that only the parent the child resides with for the largest portion of the tax year is entitled to dependent exemption. In the case in which the child resides an equal amount of time with both parents, then the parent having the greater adjusted gross income is able to claim the exemption. (I.R.C Sec. 152(c)(4)(B)) The parent who claims the exemption also is entitled to the Child Tax Credit, if he or she qualifies for it.
There are exceptions to the rule. The IRS allows parents to enter into an agreement as to which parent can claim the exemption. The custodial parent may sign IRS Form 8332, which allows that parent to release the right to the exemption for specified years for specified children. So a couple may agree that certain children will be claimed by one spouse and other children would be claimed by the other spouse. Alternatively, a couple may decide that each spouse can claim the exemptions every other year.
The Order for Dissolution of Marriage can also include a provision that the custodial parent relinquishes the right to the exemption. If the custodial parent does not sign Form 8332, the non-custodial parent should attach the relevant portions of the divorce decree to his taxes.
Is Child Support Taxable to the Receiving Parent or Deductible for the Paying Parent?
Florida courts use the Florida Child Support Guidelines Worksheet to determine child support. The worksheet finds the combined household net income by totaling income for both parents, minus certain allowable deductions. The Child Support Guidelines Chart determines the total amount that should be spent on child support based on the combined net income. To that basic amount the court may add child care costs, health insurance or expenses, or other costs. Finally, each parent’s share of the support obligation is determined in proportion to the parent’s percentage share of net income. A parent who earns 40% of the total net income would be responsible for 40% of the support obligation. Typically, the parent the child lives with most of her time will be the recipient of the support money, and the other parent will be the paying parent.
Child support is tax-neutral for federal income tax purposes. The recipient parent does not have to include the support payments in her income for tax purposes, and the paying spouse cannot deduct payments from his income.
If you have any questions about tax implications of child custody and child support, the West Palm Beach Child Custody and Child Support Attorney at the Law Offices of James S. Cunha, P.A. is here to help. We represent family law clients in West Palm Beach, Palm Beach, Palm Beach Gardens, Lake Worth, Jupiter, Delray Beach, Boynton Beach, and Boca Raton in Palm Beach County. We also assist family law clients who reside in Broward, Hendry, Martin, Miami-Dade, Okeechobee, and St. Lucie Counties. Please contact us at (561) 429-3924, toll free at 1(800) 558-1227, or via email at [email protected] to schedule your 1 hour consultation.
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