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The tax implications of child support

It’s around this time of year when the focus of many people in Charlotte shifts towards their taxes. According to the North Carolina Department of Revenue, state residents paid over $24 billion in taxes in the 2012-2013 fiscal year. With those kinds of numbers involved, it’s little wonder why tax-related issues weigh so heavily on the minds of both private citizens and public officers. Adding concerns over the tax implications of child support may just serve to heighten one’s anxieties over taxes.

Parents have a legal requirement to support their dependent children. That right applies to both parents in a divorce. The U.S. Census Department reports that over $35 billion was owed in child support in 2009. None of that income, however, is taxable. The parents paying it are not allowed to count it towards their deductions, and those receiving do not count it as part of their taxable income.

The legal guidelines defining who can claim the children as dependents are quite clear. The IRS views the parent with whom the children spent a majority of the time with during the previous year as the only one who can claim the exemption. Thus, even if a non-custodial parent contributes more to the children’s financial support, he or she still cannot claim them as dependents.

There are, however, exceptions to this rule. The noncustodial parent can fill out and submit an 8332 form from the IRS signed by both him or herself and the custodial parent. Along with that document must be a written agreement by the custodial parent that he or she will not claim the children as dependents for the year. A final decree of divorce showing that at least $600 was given in support to the custodial parent must also be attached to the non-custodial parent’s return.