If you are going through a divorce and the time has come to divide your children, you are probably going through a lot of stress because you don’t know how paying child support will affect your financial life.
The support given to the children will always depend on your income and the number of children, if you are paying child support because you have not been awarded custody or if you are receiving child support because you have been awarded custody.
Do I have to pay taxes for child support?
Depending on the case, the payor must pay tax on child support, it does not mean that there is a specific tax on child support, but there is a tax on the income generated to pay child support.
That is if you have a monthly income of $1000, and you need to pay 30% support, which, in this case, would be $333, you still have to pay taxes on your monthly income.
At the same time, the only problem is that child support is not deductible since it is an expense for your children that is not for your consumption. For this reason, your tax bills will not change except for your income and separate expenses.
But there is no need to worry since they are not deductible; you will not have a higher tax burden for any income you would claim as financial support for your children who are not in your custody.
Do I have to pay tax for receiving child support?
As much as it may seem like a reason to worry since you are receiving money into your account every month and you think it will change your tax bill because it is monetary income, the answer is no. Any income that you will be able to receive is not taxable.
Any income you may receive from child support will not be viewed by the state as income that needs to be taxed since it is money intended to support your children’s welfare.
For this reason, you do not need to pay any extra bills to pay this income money that appears in your bank account. So there is nothing to worry about on your regular income tax bill.
Why doesn’t the U.S. government view child support as regular income?
All the taxes they pay are related to your regular income, wages from work, sales you have made, and awards, among others. On the other hand, child support is direct income for your children, not your benefit.
In addition, that money is already taxed on the support payer’s tax bill. Therefore, you don’t owe the government a dollar for receiving child support money.
The only thing that will affect your taxes is all your purchases with that money, which must be reported just like all other expenses.
How does claiming the child as a dependent effect my taxes?
Whoever has custody of the children will have multiple tax benefits that will help them in their day-to-day life, but it is important to know that only one parent can have custody of the child during a tax year.
However, there are some cases where the parent who has the higher income, or the better monetary capacity to support the child, prefers to leave custody to the other parent. In such cases, the other parent who has custody of the child must use form 8332.
But the best thing to do is check with a certified public accountant to help you with all your taxes.