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During a divorce in which children are involved, you have to consider many factors. One of them is child support. You will have to consider what the taxes will be for child support payments, especially if you are the one paying them. Based on what the agreement is in your divorce finalization, this will determine how your taxes will be affected.
Who Pays What?
As far as the person receiving child support payments, they are not taxable. It can be if the individual receiving the payments reports it as income on their taxes each year. If they do not, there is no penalty to the receiver. However, this must be outlined in the divorce decree as child support monies in order to count as non-taxable, the individual making the child support payments cannot deduct it from their income.
Child Tax and Exemptions
In order for a parent to receive child tax exemption, several guidelines must be met. First, the divorce must be final, or the parents must be legally separated according to the divorce decree. If they are legally separated, it must be put into a written agreement. They must also have been living apart for at least six months of any given calendar year.
The parent that is granted child exemptions must also provide more than half of the total support for the child. One of the parents must have custody of the child and in their home for more than six months. Essentially, if you spend more time with your child, and your spouse only provides income for their expenses, then you are entitled to the child tax exemption.
Other situations, such as agreeing not to claim a child as a dependent, must be made into a written agreement. It is illegal for both parents, who are legally divorced, to claim children on their tax returns with the intent of receiving the child tax exemption.
Splitting the Exemption
The IRS does not give parents the option to split or share child tax exemption. The best thing to do is to negotiate between you two who should take the tax credit. Actually, the parent who would benefit more from the exemption depends on their total earned income and other criteria. If you feel you may benefit more from the child tax exemption, do not put it into your divorce decree to lose that exemption. Unless you have other children, you will not see it again.
Divorce involves pressing issues, including taxes for child support payments. If you are the paying non-custodial parent, be sure to consult a divorce lawyer who is able to address this concern as well as answer your questions as they arise.