Tax season is upon us. During this time of year, we often focus on things like deductions and taxable income, and how we can maximize our tax credits and deductions to obtain the largest benefit from the IRS. When reviewing tax laws, attorneys and parties going through the legal process (especially cases involving divorce and child support issues) take the time to thoroughly review the tax laws as they relate to child support.. Below are five essential tax laws directly related to child support, for both the obligee and the obligor.
1. Is it Taxable Income and/or a Deductible Payment?
Child Support is a non-taxable event. While it would be a lovely benefit to deduct child support payments from your taxes, child support payments are not tax deductible in any fashion. They do not provide a tax credit either. However, in return, child support payments are not reported as taxable income either.
2. Who Claims The Kids?
The Court has the authority to allocate the federal tax exemption. The custodial parent is presumptively entitled to the exemption under the Internal Revenue Service (IRS). Typically, the parent who has more than 50% of parenting time will be considered the custodial parent under the IRS. However, family court Judges have discretion to assign the federal tax exemption to either parent. Many times, parties will agree to rotate the tax exemption every other year or assign the tax exemption to the parent that would get the best tax benefit. However, this right may be waived. In order to waive this right, such as allowing the non-custodial parent to claim the child(ren) every other year, the waiver must be in writing and attached to the tax return of the non-custodial parent.
3. The Waiver
Many times, a legal document is drafted, signed and notarized to create a waiver. In dealing with the IRS, there are special waiver forms that must be completed in order to properly execute the waiver. The waiver may be for only one year or for several years, or even permanent. IRS Waiver Form 8332, otherwise known as the “Release of Claim to Exemption for Child of Divorced or Separated Parents,” must be completed and attached to the non-custodial parent’s tax return, unless an older decree is in place that was partied to a grandfathered exemption.
4. The Court’s Decisions
Although the IRS has rules and regulations, and forms, the Supreme Court of Minnesota ruled that a district court can determine tax dependency issues on a case by case basis and make changes to the general rule if it is in the best interest of the child. For instance, the district court may implement the exemption alternate between the custodial and non-custodial parent annually, assuming the non-custodial parent is current with child support. The court may then mandate that the custodial parent sign the appropriate IRS waiver to move forward with the stipulation.
5. When All Else Fails
If it is meant to be that your ex-spouse will always claim your children on his or her taxes, you still have options to claim something. For example, you can deduct any medical expenses you have paid for your children. Also, if you are the custodial parent and have relinquished your dependency exemption, you can still claim the child care credit and earned income credit. Finally, if you are the non-custodial parent, you may claim head of household as long as you have parenting time more than half the year.
It is important to keep these tax rules in mind when determining child support obligations. If you have any questions regarding child support issues or family law related tax issues, contact Lake Harriet Law Office at 612-750-4843. We are conveniently located in the Linden Hills neighborhood of Minneapolis.