How Does Paying Child Support Affect My Taxes?
Child support is considered tax neutral which means that it has no impact on your tax return. The recipient does not claim it as income and the payer cannot claim it as a deduction.
Alimony versus Child Support
Alimony or spousal maintenance has an impact on your taxes. The person receiving it must declare it as income and will see an increase in their taxes; the person paying it will claim it as a deduction and their taxes will be less. The fact that child support is tax neutral is the one reason that many people who have to make payments to a spouse in a divorce try to have the child support payments included into the alimony amount, so that all may be deducted.
Which is Better?
From a purely tax standpoint it is always better to receive child support simply because it is not included in the income and has no negative impact on taxes. An additional benefit is that child support is not included in your income it will not have a negative impact on some of the tax credits that you may be eligible for. These credits could include the child tax credit, dependent care credit and education credits.
Child support payments are legal obligations and if the person ordered to make payments does not make them then there are legal remedies that are not available for the non-payment of alimony. One of these remedies is having the government withhold a refund to a tax payer who is in arrears and the money is then sent to the person who was supposed to receive the payments.
You and your attorney need to carefully weigh the benefits of receiving tax neutral child support when you are crafting the separation agreement.