If you’ve just gone through a divorce, you know that there are many issues to deal with besides the separation from your spouse. If you have children, the issues can become more complex when dealing with child custody and child support. Whether you are the one paying child support or the one receiving it, you should be aware of the rules when it comes to child support, including whether child support is taxable.
Let’s take a look at several factors surrounding the issue of child support in Texas.
If you are the one paying child support in Texas your payments are not taxable, no matter the amount. The IRS looks at those payments as a personal expense. Your spouse should be using that money to buy things for your child like shoes, clothes, etc. Instead of you paying for those items directly (which wouldn’t be tax-deductible), you are giving that money to your ex to buy those items. In the end, it doesn’t matter who is receiving the money because it should be going towards items for your child.
But, you may be able to claim some medical expenses if you are the one paying for them. It’s important to inform your tax preparer of those expenses to see if you can claim them. Always be sure to save any receipts, statements, or canceled checks to show that you were the one who paid for the medical expenses.
The answer to this question is also no. In Texas, child support is not considered taxable income for the parent receiving it. You cannot list it on your tax return either for state taxes in Texas or for your federal return.
When you’re talking about taxes and child support it’s important to be very clear on who claims the child on their return. 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 is with you sixty percent of the time and with your ex forty percent of the time, you have the right to claim your child.
But, you don’t have to claim your child on your return if they spend the majority of the time with you. 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 there is a 50/50 agreement when it comes to custody and the time spent with each parent is the same, 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.
Although the rules are clear, there are cases when both parents go to claim the child on their tax return. 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.
The IRS knows that the child has been claimed twice because of their social security number. When it pops up twice, this is a red flag that something is amiss. If you have received a notice that you have claimed your child as well as your ex, the rules for claiming your child will be used. First, it will be determined who has primary custody. If both parents have equal custody, examination of each parent’s income will help decide who can claim the child.
Parents sometimes argue over who will claim the children on their tax return because there are financial benefits in doing so.
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. In some cases, it is a drastic difference. Provided that you meet the requirements, you can claim a maximum of $2,000 per qualifying child.
Another tax benefit of claiming your child on your tax return is being able to 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.
You may also be able to take advantage of a tax break with 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.
Besides knowing if child support is taxable in Texas, it’s also important to be aware of other tax issues regarding children and divorce, especially if you file your own taxes.
At Wilson & Associate Law, we know that child support issues can be confusing. That’s why we’re here to help. 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 can help you achieve child support settlements as well as assist in post-divorce child support modification. The team at Wilson & Associates Law can also help you understand child support guidelines.