Divorce changes many things, including how you file your taxes. Whether you’re the one giving child support or receiving it, you need to know the tax laws in Texas that pertain to it. Some people assume many things when it comes to child support, but much of what they think is fact is not.
Let’s take a look at several things you should know about child support in Texas, especially if you’re asking is child support tax-deductible in Texas.
When it comes to child support in Texas and the issue of whether it is tax-deductible, the answer is no. Child support is not considered taxable income for the parent receiving it. It’s also important to know that you cannot list it on your tax return either for state taxes in Texas or for your federal return.
The answer here is also no. Some people think if they pay a certain amount in child support then it is tax-deductible. It doesn’t matter how little or how much you pay, the IRS looks at child support payments as a personal expense. Your spouse should be using that money to buy things for your child like shoes, clothes, etc. If you were to go to the store and buy these items yourself and give them to your child, they wouldn’t be tax-deductible. Therefore the money you pay your ex to buy these items is also not tax-deductible.
While you can’t deduct those expenses, you may be able to claim some medical expenses if you are the one paying for them. Keep all receipts, statements, and any other information pertaining to medical expenses. Show them to your tax preparer so that they can determine whether the expenses are tax-deductible.
Besides asking is child support tax-deductible, many people also want to know which parent can claim the child on their taxes. The rules are pretty clear. According to the IRS, the parent who has primary custody of the child has the right to claim them on their tax return. If your child lives with you seventy percent of the time and with your ex thirty percent of the time, you have the legal right to claim your child on your tax return. Although this is your legal right, you don’t necessarily have to. If you and your ex agree, the non-custodial parent can claim the child. Some parents choose to do so if the custodial parent has relatively little taxable income compared to the non-custodial parent.
If your child spends the same amount of time with each parent, the parent who has a higher income for the tax year should claim the child. The parent with the higher income can gain a larger tax break from claiming the child than the other parent.
Despite the rules being clear, there are times when both parents claim the child on their tax return. As you can imagine, this is not allowed. If you e-file your return and go to claim your child who has already been claimed, the IRS will reject your claim. If you mail in your return, you will receive a notice in the mail.
Your child’s social security number is the big red flag for the IRS. When the number pops up twice, the IRS knows something is wrong. If you have received a notice that you and your ex have claimed your child, the rules for claiming your child will be used. First, it will be determined who has primary custody. If both parents have equal custody, each parent’s income will be looked at to see who can claim the child.
When you claim a child on your taxes, there are financial benefits. This is why some parents argue about who gets to do it. Let’s take a look at some of the benefits.
Whoever claims the children on their tax return can receive a child tax credit. This partially refundable credit can reduce the amount of money you have to pay in taxes. Depending on the other information on your taxes, it can make a drastic difference. Provided that you meet the requirements, you can claim a maximum of $2,000 per qualifying child.
If you claim your child on your tax return, you can also get a credit for care expenses. If you pay for childcare expenses so that you can work or are looking for work, you may be eligible for a tax credit of up to 35% of the cost.
Another tax benefit comes in the way of a dependent care flexible spending account. If your employer offers a flexible spending account, you can contribute to it with pretax dollars to pay for childcare and other expenses. This will reduce your overall taxable income.
While most parents want to know if child support is tax-deductible in Texas, you should also be aware of other tax issues. If you use a tax preparer, they should be aware of the laws. But, if you file your taxes yourself, it’s important to educate yourself.
Wilson & Associates Law is here to help you sort out your child support issues. If you have questions about child support, whether you are the parent paying or receiving, contact us to get you the answers you need. We help clients with issues like child support settlements as well as assist in post-divorce child support modification.