Parents often question how child support payments affect their taxes. Here’s how child support can affect your taxes in California.
Child support in California is tax neutral, meaning that you do not have to claim child support that you receive as income. Furthermore, the person paying child support cannot be deducted; taxes must still be paid on that money.
How Is Child Support in California Calculated?
Child support in California is paid according to the California Child Support Guideline. This is a formula based on parents’ earnings, the number and needs of the children, as well as the time children spend with each parent.
Related: 7 Factors That Determine Child Support in California
The Importance of The Wording of a Divorce Agreement
If child support is combined with alimony and/or characterizes payments with terms such as “family support” or “alimony”, that payment will not be considered child support by the Internal Revenue Service. This potentially changes tax status in regards to these child support payments.
Tax Filing Status and Dependency Exemptions
A dependency exemption is an amount of money that is deductible from your adjusted gross incomes for tax purposes. In addition, dependency exemptions are sought after as they typically increase net income.
Generally, parents are entitled to a dependency exemption for each child that they support. The caveat is that there is only one exemption available for each child; this means that that exemption cannot be split unless parents file a joint tax return. Thus, in a matter of divorce or contested custody, there is an issue regarding who receives the dependency exemption. This is a relevant issue because it also affects child support.
Which Parent Should Receive the Dependency Exemption?
Child support is based in part on each parent’s net disposable income; the more net income a child support payer has, the greater the obligation of child support. Dependency exemptions typically increase net income, thus either increasing or decreasing child support depending on who claims the child.
Related: Who Claims a Child on Taxes With 50/50 Custody in California
Generally, a parent who earns more taxable income receives a greater amount for the dependency exemption. So, for a parent with little to no taxable income, there is a limited benefit to this exemption. Conversely, when a parent passes a certain barrier and earns too much income, dependency exemptions begin to lose value and would likely receive no benefit to claiming a child on taxes.
Maximizing income through dependency exemptions is important because if you can maximize income through a dependency exemption, the amount of child support received can also be maximized.
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If you or a loved one is seeking more information about how child support can affect your taxes in California, contact us. We’ll get you in touch with the most qualified attorney for your unique legal matter. Get your free consultation with one of our California Child Support Attorneys today!