Just a random question. I did not realize that alimony payments were tax deductible until it came up in a conversation, which got me to wondering why that and not child support? Doesn’t make sense to me, but maybe there’s a rationale I don’t know about.
The custodial parent already claims the child as a deduction. The child may be claimed as a deduction on only one return. This is how the IRS explained it to me, anyway, when I called to see if I could deduct my child support payments.
Technically, the money isn’t given to the receiving parent, so it isn’t income. It is given to the custodial parent on behalf of the child. Sometimes the distinction between the two isn’t so clear, the IRS generally rule, IIRC, is that it is child support if contingent on the child reaching a specific age or graduation, alimony otherwise. Alimony payments are also deductible by the payer, child support is not. Even though child support is not considered income on the 1040, it does have some tax consequences. Some forms may request it (one of the child tax credits I think?). It can also improve your deduction if you itemize and opt to deduct sales tax instead of state income tax.
The non-custodial parent doesn’t get the benefit of the tax deduction but still has to pay out of his own household to support the child. It seems like a double bonus to the custodial parent (free money + tax deduction) while a double cost to the non (support is taxed + no deduction).
The idea is as others have said; since it is non-taxable income, it is not tax deductible. The IRS has to get a cut somehow (any deduction has to lead to an income expense for someone or something). For example, your mortgage interest is tax deductible to you, so your bank has to declare it as income.
As to why it’s not taxable to the receiving party, I don’t know. Guess it seems unfair to the custodial parent.
Seems there should be a compromise. Might reduce nonpayment somewhat if it wasn’t essentially punitive to the noncustodial parent. Or maybe the custodial parent should have to account for where it goes, or maybe even a percentage of it should go into an account for the child when they turn 18.
It’s taxable income for the non-custodial parent, though. That’s my issue. If the parents were still together, both would benefit from deducting the child. When they split, the NCP loses the deduction AND has to pay out child support, which is also taxed. That seems like a multiple-loss scenario for the NCP.
I don’t think that’s a comparable scenario. My bank is getting the interest as income, so they pay the tax. I pay out, I get the credit. If child support worked that way, the CP would pay income tax on the child support (but would also get the deduction for the kid) and the NCP would not pay taxes on the support, but would not get the deduction. That would be more equitable and would take some of the sting out of the pay out, financially, for the NCP. I can’t figure why it’s not done that way.
Something. Reducing the NCP’s tax burden would be a nice place to start. Why the hell alimony should be tax deductible for the payer but not child support I still can’t figure out either. Does the alimony receiver pay taxes on the alimony?
Rubystreak
Yes, it is a multiple loss scenario for the NCP.
That’s what I mean. Your bank declares it as income (and pays taxes on it), so you can deduct. The CP does NOT pay taxes, so the NCP can’t deduct.
Alimony is taxable (and deductible to the payer). As to why the diff, search me.
No one has complained loud enough to change it, I guess. Plus, anyone complaining about it looks like a deadbeat. But yeah, it’s grossly unfair.
Parents are obligated to support their children. When married couples take care of their kids (e.g. buy them food and clothes) those expenses are not deductible. Just because the parents got divorced, the money spent on taking care of their children shouldn’t suddenly become a tax deduction. So, when a parent earns income, that income is taxable even if it has to be handed over to the other parent in the form of child support.
Here’s why I think alimony gets a different treatment. Divorce doesn’t change the fact that you’re a parent. But once you get divorced you no longer have a spouse, and thus aren’t obligated to take care of that person anymore. The government wants to encourage the wealthier spouse to help the other one, so that the government doesn’t have to step in and help with programs like welfare. That’s why they give a tax incentive to pay alimony. Person making the alimony payments gets to deduct them, and person receiving them has to treat them as income. Person getting the payments is presumably less wealthy, and thus in a lower tax bracket. This creates an overall tax savings, and encourages people to pay alimony.
There are certain requirements that the payments must meet to be deemed alimony. As a result, if the spouses don’t want alimony treatment, it’s relatively easy to opt out of that treatment (by making sure that one of the requirements isn’t met).
I think they take this into account when the court decides how much child support you have to pay. When I gave custody of my son to my ex I had to fill out a questionaire about my yearly income and expenses and also had to submit a copy of my income tax returns for the previous year.
I was lucky when it came to this, my ex went on disability a couple years after the divorce. He didn’t have to file a tax return, so he wasn’t taking a deduction for our son. There is an IRS form that he signed that stated he wouldn’t take the deduction for our son so I could take the deduction on my returns. I explained that if he wasn’t taking it, it was just lost money that was going to the government for free and I could use it to buy stuff that our son wanted that he couldn’t afford. Nintendo games…Mountain Dew…Magic the Gathering cards…
Well, yeah, they are. Just not in an itemized manner. Dependent deductions. Those don’t exist just because the kid exists, but because you’re buying them food and clothes.
**ok11 **gave a good explanation. Before divorce there is one deduction per child and it doesn’t matter how much is actually spent on the child. After divorce there is one deduction and it doesn’t matter how much is actually spent on the child. Which parent has the right to claim the child as a dependent, along with the amount of support, is part of the child support agreement. The government is not going to give up the tax revenue for *both *the tax deduction and the support payment.
Two parents, with incomes X and Y. Deduction Z is taken. Taxable income = X+Y-Z.
Two parents, with incomes X and Y. Deduction Z is taken. Child support S is transferred from one parent to another. Taxable income = X+Y-Z.
Oh, I understand the math perfectly… I didn’t realize that who got to claim the dependent was negotiable! I was assuming that the man (typically) would never get the deduction, even if he were providing more than 50% of the monetary support.
Well it depends on how amiable the divorce is, but there exists an IRS form that essentially says “I the custodial parent elect not to claim my dependent for the following years.” It doesn’t even need to apply to the divorce agreement, but both parents have to sign it. It can also be filed in perpetuity, which would be nice if say the custodial parent has a much higher income, so that they are ineligible to claim the child tax or dependent care credits. Even though they are custodial, they could allow the other parent to claim those credits for the child, and split the addition refund or whatever they decide.
It is form 8332 and can be part of the divorce agreement whether it is amicable or not (trust me).