Wednesday’s Video Clip: How are child payments taxed?
In this video, we discuss the tax consequences of child support.
Parents who receive child support payments under an agreement or court order made after April 30, 1997, do not have to include those payments in their taxable income. Parents who make these payments cannot deduct the payments from their taxable income.
This tax rule does not apply to continuing support paid under agreements or court orders made before May 1, 1997. The old rule still applies until the agreement or order is changed. Under the old rule, parents receiving support must pay tax on the amount received, and parents paying support can deduct the payments from their taxable income.
The new tax rule means that more of the support money received by the parent with custody is available to spend on the children. It also means that parents paying child support under an agreement or court order made after April 30, 1997, will have less after-tax income than parents paying the same amount according to an agreement or order made under the old tax rule. Courts take this into account when making new support orders.
If one parent wants to change to the new tax rule, but the other does not, the parent who wants the change must apply to the court to change the existing child support order or agreement. Parents thinking of doing this should be aware that when the court makes a new child support order or changes an existing order or agreement, it must apply the Child Support Guidelines.
