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Are Child Support Payments Deductible?

Q: I have to start paying child support to my ex-wife on August 1, 2020. I want to know if the payments are deductible? May I claim the child as a dependent?

Bradley, Leighton, AL

A: No and maybe. Child support payments are neither deductible by the payer nor taxable to the recipient.

This is where a good divorce lawyer plays a very large role. If your federal and state combined tax rate is 25%, you have to earn $1.25 for every $1.00 you pay in child support.

The payer of child support may be able to claim the child as a dependent if the child lived with the payer for the greater part of the year. If so, the payer is the custodial parent for federal income tax purposes. The custodial parent is generally the parent entitled to claim the child as a dependent under the rules for a qualifying child if the other tests for claiming the child are met. This should always be addressed in the agreement and ratified by the court.

If the payer is the noncustodial parent, then the payer may only claim the child as a dependent if the special rule for a child of divorced or legally separated parents applies.

That rule requires, in part, that the custodial parent sign and provide the noncustodial parent a Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. The non-custodial parent must, then, attach a copy of that release to his or her return in order to claim the child as a dependent.

When I did divorce work 30 years ago and the child support guidelines came into effect, I occasionally would negotiate agreements where the non-custodial parent could claim the child with an IRS Form 8332. My reasoning and argument was that in certain cases the parent who was paying was able to benefit substantially more by having the child as a deduction than a spouse who had little or no income. It just made financial sense to keep more money in the hands of the parents, divorced or not.

Buckle up, wash your hands and as always your referrals are appreciated!
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