Child Support and Taxes

Child support is not considered taxable income and is not tax deductible to the payer. In some cases couples who are considering an amount of child support in excess of the minimum required by the state guidelines may wish to divert some of those funds to alimony. This creates an advantage for the payer in situations where the payer is in a higher tax bracket than the receiver. In exchange for creating such an advantage for the payer, the receiving spouse may be able to negotiate a higher overall payment. However, it’s important to keep in mind that the alimony recipient will typically have a higher tax bill. A lawyer or accountant can help determine the net effect of such a switch, taking into account the recipient’s current and potential future earnings. Depending on your particular circumstances, the tax implications of child support may or may not have a significant impact on your budget. The bottom line is that each party will need to look rationally at his or her financial situation, and the two of you will have to work out a solution that takes advantage of every option for the overall financial health of this new family arrangement.