Taxes and child support are probably two of the least popular subjects for parents. However, even if we don't like to think about the tax rules associated with child support it is still important to have basic knowledge especially if you will be paying or receiving child support because of a Texas family law case. In today's blog post from the Law Office of Bryan Fagan, we are going to cover how the Internal Revenue Service treats child support payments and whether you need to adjust how you prepare and file your taxes moving forward after your family law case has come to an end.
It is a good idea to start considering this issue before your child custody or divorce case comes to an end. Child support is not tax-deductible which means that if you are the parent who pays child support you cannot deduct what you pay to your co-parent on your taxes like you can other expenditures that you have during the year. Taxes are complicated., however. Many of us, myself included, use a tax professional to review our tax forms, prepare our filings and complete the process for us. We may oversee looking over the filings, but it is worth it to pay someone else to prepare our taxes especially if we have income from multiple sources such as a business that we own.
How child support is treated as far as taxes are concerned is not something that you can change. What you can change is how you negotiate in mediation by knowing how child support is taxed or handled in your taxes. Your responsibilities may change somewhat depending on if you are the parent who receives child support or if you are the parent who pays child support. Before we go any further, let’s discuss what child support is for Texas families so that we can define our terms a bit more clearly so there are no misunderstandings about the payments that we are discussing here.
How is child support defined for tax purposes?
Child support is only “officially” child support if it is ordered by a court to be paid from one parent to another. We can think of child support as involving payments made by a non-custodial parent to a custodial parent. Your children will live with the custodial parent and the non-custodial parent will have visitation rights as to the children. Since the noncustodial parent spends less time with the children it is their responsibility to pay child support. You will pay child support based on how many children you have and what your net monthly income is. Typically, payments are made through the Office of the Attorney General after a wage withholding order is sent to your employer and payment is withheld on behalf of your children. The child support payments are made to benefit your children but are made to your ex-spouse or co-parent.
How much support will you be paying?
Let's assume for this section of the blog post that you are going to be the parent who pays child support. In Texas, a guidelines level of child support is laid out in the Texas Family Code that will help determine how much you pay in support each month. While this is a guideline amount, it is not necessarily the amount that you will end up paying, your specific circumstances and most notably the needs of your child will determine how much you pay each month in child support. Do not assume that you will pay guidelines child support, but you will likely pay something like it to absent any atypical circumstances for your children.
One of the biggest misconceptions that many parents have as they begin a child support case is that they can artificially decrease their income in hopes of having to pay less money each month in child support. First, yes, it is generally true that a parent who earns less money will pay less in child support. This is nothing more than an indication that you will be abiding by the simple child support formula contained in today the Texas Family Code which indicates that child support will be based upon a formula that takes a percentage and multiples it against your income to determine how much you will pay in child support.
One of the biggest misconceptions that you need to keep in mind is that you can take a job that pays less money to pay less in child support. This is called being underemployed. If it is a natural occurrence as a result of a bad economy or something along those lines, then that is one thing. However, it is a completely different thing to find yourself losing one job only to gain another which pays less to pay your ex-spouse less in child support. That is something that not only doesn’t make sense for you but also doesn’t make sense as far as helping your child. It’s not like you pay child support to a child that you don’t know. This is child support that is intended to help the household that your child lives in primarily. You do not have to like the idea of having to pay child support to an ex-spouse but that is what the law says you must do.
Here is the trouble that you may get into if you purposefully under-employ yourself. If you are caught doing this by the judge you not only would find yourself in a position where you are earning less money than you ordinarily would be but you may also find yourself paying the amount of child support that you would have under your old level of child support. For example, if you are a salesman who earned $100,000 consistently over the prior decade but you suddenly find yourself working in a job that pays you $30,000 a judge may raise an eyebrow when you suddenly start earning that salary immediately before the child support case. A judge may ask you questions about this income decrease.
Do not be surprised if the judge orders you to pay child support which approaches what you would have paid under your old salary. It does not pay to try and be shifty or sneaky when it comes to paying child support. Your ex-spouse will notice what is happening and it would not be surprising if the judge didn't pick up on that, as well. You will cause yourself to lose trust in your spouse, and the judge, and none of this will stand to benefit your child. Looking out for the best interests of your child means paying enough child support to help make sure that his household essentials can be paid for and that he lives a comfortable life.
Keep in mind that if you and your spouse cannot agree on an amount to pay child in child support then that issue would go before the judge. A hearing before a judge will allow both of you to submit evidence and propose an amount of child support that you believe is fair based on the circumstances of your family. The judge will decide how much child support should be paid based on income, the needs of your child, how many children are before the court, and other helpful considerations. Do not lose sight of the fact that it can be a difficult thing to have to be a single parent raising a child. Even if you and your co-parent do not see eye to eye on this subject it is still helpful to be able to look past your differences of opinion and remember that it is your child who stands to benefit the most from child support.
If your child has special needs, then those need to be explored in a hearing or mediation. More predictable costs should be collected and then presented to your spouse or the judge. The costs that may be predictable are monthly medication and doctor's visits as well as the costs for tutoring or private school. If you can add these costs up and submit them to the court, then you put yourself in a good position to be able to have an accurate amount of child support to be paid. Otherwise, if you are unprepared then the judge will likely look at your spouse's information, and you may not like the results of that determination.
Can you deduct child support payments from your taxes?
The IRS does not allow you to deduct child support payments from your co-parent. You may be able to qualify for a dependency exemption on a per-child basis, however. You should investigate this along with your tax preparer or accountant to determine what sort of impact this could have on your tax filings. You can and should discuss this with your attorney so that you and your spouse can negotiate over whether both of you will get an exemption or whether you may need to trade off years using the exemption. You may want to alternate years using the exemption with you having it in even years and your spouse getting it in odd years. If you two are unable to negotiate on this subject together then you can let the judge, decide it in a trial.
What many families decide to do is split the exemption up along the lines of their combined income. Here is what I mean. Suppose that you earn $100,000 annually and your spouse earns $50,000 per year. Since your income is 2/3 of the "household income" then you would get the exemption two out of every three years. This makes sense because you are doing the earning for 2/3 of the needs of your child. This is just a hypothetical situation, of course, and is not necessarily how your circumstances would play out. You can speak to your attorney about their thoughts and how it may be more advantageous for you to negotiate on claiming a child support exemption per year.
Keep in mind that you need to do your homework to determine whether it even makes sense for you to claim the exemption. You may earn too much/too little for the exemption to do anything for your tax liability to change. In that case, your spouse would be able to claim the exemption for as long as it makes sense for him or her to have access to it. Somebody ought to be able to benefit from the tax exemption and it is better to let your spouse use it than to let it collect dust on your side of the tax ledger.
Child support as income?
Child Support payments do not need to be listed as income on your taxes if you are the parent who receives child support payments. When it comes time for you to file your taxes in April you should not include your child support payments when you report your income from the past year.
How are child support arrearages handled when it comes to taxes?
Ultimately, it doesn't matter if you arrived at your child support order through negotiations with your spouse or if a judge ordered You to receive or pay child support in a certain way. In either case, you are obligated to follow whatever is stated in your child support orders. For this reason, if you are failed to make your court orders of child support on time and in full you are technically in contempt of court. Contempt of court means that you have violated a court order. It doesn't matter what the reason for the nonpayment of support is. You are obligated under the Child Support order to pay a certain amount of child support per month by a certain date. If you do not do so then you violate those court orders and can face punishment for having done so.
The way this works in Texas is that the office of the attorney general keeps a Ledger of child support payments that are made or missed each month. The missed payments are called child support arrears. At that stage, the office of the attorney general can initiate an enforcement case against you to bring to the court's attention your failure to pay child support. Or your Co-parent can file an enforcement case against you. At this time, you would need to defend yourself from these allegations and provide a reason as to why child support was not paid as ordered.
there are multiple ways for the court to enforce an order against you. For one, your wages can be garnished as well as money in your bank account. Your driver’s license or professional license can also be suspended to encourage you to pay child support. If you were going to receive winnings from a lottery or money back on your taxes, then those funds can also be intercepted to pay child support arrearages. Your best bet, if you are unable to pay child support for any reason, is to file a modification with the court to notify them of the substantial change in circumstances that you have seen in your life and to request, they reduced the amount of child support to take into consideration those changed circumstances. One of the most common changes in circumstance that you may be able to assert is a new job that pays you less money. Or, you may have had a child in another relationship and that can cause you to pay less in child support, as well. However, things like moving into a new house or buying a new car which takes up more money in your budget would not be sufficient to justify reducing your child support obligation in most cases.
Even if you are successful in having your child support obligation decreased you still need to bear in mind that any arrears that you owe in child support will still be held against you. For that reason, you need to bear in mind that even if you are successful in getting the amount of child support that you owe each month decreased you would still owe any amounts of child support that you have not yet paid. In a situation like this, it is important to have the advice and perspective of an experienced family law attorney to help guide you. There is so much at stake both for you and your children when it comes to child support that if you failed to prepare a case sufficiently you will almost certainly not achieve any of your goals. An attorney can help you focus your goal setting so that you have a better outcome in the case.
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