Tag: child support

Posted on by Jan Roberg

Can I Write Off My Child Support Payments on my Taxes?

Divorce and Children

Drawing/Photo by o5com on Flickr.com

Quick answer:  No.

 

For a longer answer, you may want to know why.  Here’s the reasoning:  if you are married and living with your family and raising your children—there’s no deduction for paying for their school clothes or feeding them.  That’s pretty much what your child support payments are—feeding the kids and paying for clothes.  So whether you live with your kids, or live apart, the money that’s used for those day to day necessities is not a tax deductible expense.    You don’t get a deduction for paying it and your ex doesn’t claim it as taxable income.

 

What about alimony?  Alimony is different—you get to deduct alimony on your tax return if you pay it, and your ex has to claim the alimony as income.  Alimony counts as income so your ex will have to pay taxes on it. Alimony does not count as earned income for the earned income tax credit, but as one of my clients explained to me, “Oh, honey—trust me I EARNED it!”

 

You might be thinking that paying alimony is better than paying child support—but there’s a catch to that thinking.  If the “alimony” ends when the kids turn 18— the IRS will call it child support anyway so you lose all the tax advantages.  Alimony basically goes for the life of your ex or until a re-marriage occurs.   So while alimony has some tax advantages—child support at least has an end date.  (There are some cases where alimony is only paid for a limited time, but it has to be very separate and distinct from any type of child support to be valid for tax purposes.)

 

Some people pay both alimony and child support.  In a case like that you can deduct the alimony portion of your payment on your tax return.  Now it’s important to know—if you fall behind on your payments—the IRS assumes that you pay the child support first.  For example:  Let say you pay $300 a month in child support and $200 a month in alimony.  For the year you pay $6000 all together:  $3,600 in child support and $2,400 in alimony.  You’ll take a $2,400 deduction for the alimony on your tax return.

 

Now, what happens if you lost your job and didn’t make any payments in November and December of the tax year?  You would have paid $5,000 total, right?  ($500 times 10 months)  And $2,000 of that was for alimony.  But according to the IRS—you pay the child support first.  So of the $5,000 that you did pay, $3,600 went towards the child support and you only get to deduct $1,400 (the amount that’s left) for the alimony.  So make sure that you’re all paid up before the end of the year if you want to deduct all of the alimony on your tax return.

 

If your hungry for more, try http://www.mentalfloss.com/blogs/archives/135170 to put icing on the cake.

Posted on by Jan Roberg

Men Divorcing: Tax Issues

Divorce Cakes a_005

Photo by Dr. John Bullas

When you’re going through a divorce you have a million things to think about, and probably the last thing you want to spend time on is taxes.  But it’s important to think about them early, rather than later—here’s why.

As an enrolled agent, I usually don’t get to talk to men going through a divorce unless they’re already a client.  Instead, I see is what happens to divorced men at tax time after it’s too late for me to fix things.  Here’s the basic problem:  a guy is going through a divorce.  He goes to his attorney and hands over his pay stubs so that a fair and reasonable amount can be determined for child support. 

The child support is based upon the breadwinner’s take home pay.  This is where the problem is.  Up until the divorce, the man generally has been filing his tax returns as “married filing jointly”; which has a lower tax rate than “single.”  If he has children there are the exemptions for the kids which reduced his tax.  Of course the exemption for the wife will be eliminated with the divorce too.  If he owned a home then there were itemized deductions and tax advantages that he’ll lose as well.  Bottom line:  getting a divorce will increase a breadwinner’s income taxes.

For example:  Let’s say John is going through a divorce.  He makes $4,000 a month and brings his pay stubs to his attorney to determine the child support payment.  Currently, John’s withholding is based on 4 exemptions; one for him, two for his kids, and an extra one because of his deductions.  In this case, his federal withholding would be $248 per month.  But the reality of the situation is that after the divorce, John will be single and filing as single with probably no exemptions on his tax return.  He should be withholding $561 per month instead, that’s a difference of over $300. 

This creates a double whammy.  First, the child support is set based upon John’s take home pay which right now looks like it’s $300 a month more than it really should be – so John winds up paying more in child support then he can really afford.  Then, when tax time comes around, John wasn’t withholding enough and now he has a tax debt of $3600 that he never expected and can’t afford to pay because all of his extra money is going to his child support. 

Remember, paying child support does not count as a tax deduction.    

So what does John do next?  He goes to his attorney and pays the attorney to renegotiate the child support payment.  This costs him even more money and ticks off the ex-wife (who wasn’t too pleasant to begin with-that’s why she’s the “ex” wife.)  So now he’s got a tax debt, attorney fees, an angry ex-wife, and in the meantime, he’s racking up another IRS bill because he can’t afford to change his withholding if he wants to make those child support payments. 

Now a really good attorney recognizes this problem and would have John change his withholding before he ever went to court.  But from my end, I’ve seen too many cases where this wasn’t done.  So if you’re going through a divorce, you need to be the one to make sure that you’re protected.  Plan out what your tax situation will be as a single man and prepare for it up front.  Hire help if you need it, it will be money wisely spent.

Posted on by Jan Roberg

Last Minute Tax Tip: Pay Up Your Alimony Now

Let’s face it, divorce sucks and paying alimony is even worse. But if you have an arrangement where you are supposed to be paying alimony (and I mean alimony, not child support) it’s to your advantage to pay up for the year before December 31. Here’s why:

Money that is paid out as alimony is a tax deduction for you. (And, if it’s any consolation, it’s taxable to your ex.) Child support, on the other hand, gives you no tax deduction and your ex pays no income tax on it.

Alimony is considered to be an “above the line” deduction. That means it lowers your adjusted gross income. Now that sounds like a lot of accounting jibberish, but on your tax return, it’s valuable. It can make the difference between whether or not you qualify for other deductions or tax credits. Made simple: above the line deductions are good.

Now here is the really important part: if you pay both alimony and child support, and you’ve missed some payments, then whatever payments you have made get counted as being child support first, and alimony second. Okay, in plain English: Let’s say you’re supposed to pay $100 a month for alimony and $200 a month for child support. $300 a month total. (Okay, that must sound like a fantasy but I like easy numbers.) Anyway, suppose you were good all the way up through September at paying $300 a month but then something happened and you didn’t make any payments from October through December.

For those first nine months you paid a total of $2,700. In your mind you paid $900 in alimony and $1800 in child support, right? Except that’s not how the IRS sees it. To them you paid $2,400 in child support and $300 in alimony, because for tax purposes you pay the child support first. So with the money that you did pay, you don’t get your full deduction. And let’s be real here, we’re probably talking about bigger numbers in real life. This tax deduction can really make a difference.

Bottom line: if you want to claim your full alimony deduction, all of your alimony and child support for the year must be paid in full by December 31st.