Dealing with a divorce is challenging, but it becomes even more complex and expensive when children are involved. Whether you are a custodial or non-custodial parent, you may have many questions, such as how child support affects taxes. Find out more below on this topic, and contact our child support lawyers in Chicago at Gordon & Perlut, LLC, if you need legal assistance.
Child support is tax neutral in Illinois on your State Income Tax Return. Tax neutral means that the payer cannot deduct their taxes, and the payee does not claim payments on their tax return.
If you are the custodial parent paying child support, you will pay your income and payroll taxes as usual. However, you cannot get back the taxes you paid on income used for your child support payments. The reason is that child support payments are not deductible for tax purposes. Instead, child support is considered a personal expense on tax returns.
The thinking is that child support payments fund routine expenses, such as rent, food, schooling, etc. The money is being used just like it would have been if you were still married. You are required to pay income taxes on your income and use your taxed income to cover the child support payments.
If you are a non-custodial parent, you must meet child support obligations to avoid falling behind, meaning you owe child support debt. You also will owe interest on the debt. If you continue to miss child support payments, this is called being in child support arrears. You could pay this debt over time, but it also can be taken out of your bank account by the state or taken out of a tax refund by the state child support agency.
For Federal tax purposes, the rule is that the custodial parent can claim the child on their Federal tax return if the custody agreement/judgment is silent on the issue. However, the divorce and custody agreement should state who gets to claim the child as a dependent on their tax return. Some Illinois divorce settlements let parents rotate yearly on who claims the child. Remember to speak to your divorce attorney about this critical issue. You should remember to ask for language in the divorce agreement about how the children will be claimed in state and federal taxes.
Another issue to remember: the custodial parent may be eligible for more tax benefits than the non-custodial parent. For example, the custodial parent could have more tax-deductible childcare expenses, such as after-school programs and daycare. Talk to your attorney and tax professional if you need help with taxes related to child custody.
It is difficult to get answers independently if you have complex questions about a child support case, including tax matters. But our attorneys can assist you with all divorce and child support matters. Contact our child support lawyers in Chicago at Gordon & Perlut, LLC, today at (312) 360-0250.