What are the tax consequences of child support?
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UPDATED: Jul 15, 2021
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Making legally-mandated child support payments has no tax consequences for either the person making the payments nor the person with custody of the child who is receiving them. In general, child support payments are considered “outside” of the tax system for both parties. In other words, they don’t affect taxes and are not of interest to the IRS. The person making the payments cannot deduct the payments as any sort of expense, and the other person does not have to list the payments as income. The payments are thus tax-free to the recipient and do not provide any tax benefit to the payer.
Rules for Taxes and Child Support Payments
This tax-free law only applies to payments made strictly as child support. Any alimony payments paid for the support of an ex, or even any payments made as some form of general family support for both children and an ex-spouse, would have an impact on taxes in the vast majority of situations. This is because the federal government considers money going from one ex to another as income-shifting, and income-shifting is typically a taxable procedure. (On divorce or separation agreements signed after January 1, 2019, alimony payments are not deductible by the payor or considered taxable income to the recipient.) Child support, on the other hand, is non-negotiable and outside the reach of taxes.
Taxes and Alimony
Those who create their own divorce settlement plan outside of court may sometimes opt to provide for higher “alimony” payments in exchange for lowered child support. The payments could act as a disqualifying factor for some income-contingent programs since the alimony would need to be reported as a form of monthly income. However, beginning 2019, the spouse who pays the alimony can no longer deduct the amount; the recipient no longer pays taxes on it.
To ensure that any alimony, child support or other agreement is written in a manner that makes the most financial sense for you, you should strongly consider speaking with a lawyer for guidance.