Can I claim the child support I pay on my taxes? This is a query that frequently arises in Michigan during consultations. A person is eligible for a tax deduction for child support in the context of family law. Is a custodial parent eligible for a tax deduction? Or does the non-custodial parent who is making support payments get the deduction?
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The custodial parent is often believed to be eligible for the deduction. Divorce court rulings have made tax deductions a shared benefit. There are instances where a spouse gets the deduction for this year and the other the following year. The use of deductions depends on the circumstances.
How does the Internal Revenue Service (IRS) see child support?
The parent that the child spent the most nights with during the year is the custodial parent. The non-custodial parent is the other parent. The payer cannot deduct child support payments from their taxes. They are not considered taxable income to the payee. You are not automatically eligible for a dependency exemption just because you pay child support.
Claiming your child as a dependent
The qualified child of the custodial parent is a child of divorced or legally separated parents. The child meets the residency requirements. The child will be regarded as the noncustodial parent’s qualifying child. This qualification is for the purposes of claiming a dependency exemption and the child tax credit. It is not for the earned income credit. The parent must meet the following four conditions to qualify for dependency exemption:
[ 1 ] The parents:
- [ a ] are divorced or legally separated under an order of divorce or separate maintenance,
- [ b ] have a documented separation agreement in place, or
- [ c ] married or unmarried have always lived apart for the final six months of the year.
[ 2 ] provided the child with more than half of his or her assistance for the entire year.
[ 3 ] have sole or joint custody of the child for more than half of the year.
[ 4 ] with noncustodial rights included a Form 8332, or equivalent statement, with his or her tax return. The equivalent statement must have the same information as the form. The custodial parent must sign the form. (For a pre-1985 or post-1984 and pre-2009 divorce decision or separation agreement, see special rules in Publication 17).
Additional guidelines for claiming an exemption for a dependent can be found in IRS Publication 17.
Claim your dependency exemption for your child based on the exception stated above. Claim the child tax credit for your child who was under the age of 17 at the end of the year.
Claim your Earned Income Credit (IEC)
For taxpayers with low to moderate incomes, there is the Earned Income Credit or EIC. It is a refundable tax credit.
[ a ] A non-custodial parent who has been granted authorization by a custodial parent to claim a child as a dependent is not eligible to make an EIC claim for that child.
[ b ] The IRS will request documents such as school records, birth certificates, or medical records to verify the eligibility of a child claimed by more than one taxpayer.
[ c ] Even if you don’t have a child who qualifies, you could still be able to apply for the credit. For more details, refer to IRS Publication 17 or IRS Publication 596’s rules and income limits.
Avail of the Treasury Offset Program
All or a portion of your federal tax refund may be used to settle outstanding debts. Can be entitled to one if have not yet paid certain obligations, such as child support, back taxes, or state back taxes. Your return will be offset and sent to the organization to be applied to your debt by the Financial Management Service (FMS).
Mail is used to notify recipients of the disbursement of payments. Call FMS toll-free at 1-800-304-3107 if you have questions concerning the Federal Tax Refund Offset Program.
When a custodial parent receives various state benefits, the state is given some past-due child support payments. It’s possible that the custodial parent won’t immediately receive past-due child support payments.
The second spouse may be deemed an aggrieved spouse. The second spouse will be entitled to receive his or her part of the refund. It will be taken from the joint return when only one spouse has a past-due amount.
How does a Michigan family court see child support?
For the purposes of dependency exemptions, the IRS only permits one person to claim a child as a “qualifying child.” This holds true for the earned income tax credit, the child tax credit, the dependent care credit, and the head of the household filing status.
For the purpose of obtaining an exemption from state income taxes, the same guidelines apply in the state of Michigan. All of the couple’s qualifying children are used against the income on the same return. This works with the married parties filing a joint return. But what does the single filer do? Do mothers usually get the first claim?
In Michigan, the tax exemption issue in a divorce frequently forms a component of the judgment. The parent with primary physical custody gets to receive tax exemptions for the children. Whether it is the mother or the father, the court will frequently order the tax exemptions to be divided equally. Split it between the parents if joint physical custody is granted to the parents.
As an illustration, one parent might claim the kids in odd-numbered years, while the other might claim them in even-numbered years. According to the Michigan Court of Appeals, the trial court has broad discretion in this area. It can grant either party the federal income tax dependency exemption for minor children.
The appellate court regarded the allocation of income tax dependency exemption as part of the child support. A component of the child support award rather than the property settlement award. It is thus open to modification.
This classification is just a presumption. The parties and court may also agree on this. The tax dependency exemption should be recognized as a property settlement award. Under these circumstances, it would make it unmodifiable.
If treated as a component of a child support award, the court may modify it. You still need to show a proper reason for a change in circumstances. Changes such as the non-custodial parent getting more overnights than the custodial parent.
A Michigan court order can grant a noncustodial parent the right to make a claim for the child. The parent must still abide by the Internal Revenue Coto to claim the exemption. State law is still subordinate to federal law.
The IRS ultimately decides whether to allow the exemption. This is so despite the fact that one parent may move for a judgment of contempt against the other parent. A contempt against claiming exemptions. This is taken as defiance of the divorce decree in the Michigan family court. When both parents try to use the same child’s social security number, there will undoubtedly be an audit or disallowance.
How can child support affect my IRS Tax Refund?
Before a tax refund is actually seized you will get notified in writing. It will come from the Financial Management Service branch of the Treasury Department. Consider the potential tax refund offset at this time to make a decision. You might be able to lessen the impact of the seizure on your finances.
The best way to prevent receiving a notification of an IRS Tax Refund Seizure is to pay child support on time. If you’ve lost your job or you are having difficulties making your payments on time, you must take action. To alter child support, talk to your local child support agency or visit the court.
You risk a contempt of court hearing, fines, and other penalties if you ignore your child support duty. Or not pay on schedule. Sanctions include the seizure of your tax refund.
If you’re married to someone with child support obligations.
You might be a spouse married to someone who owes child support. If you are not accountable for the debt, you may file an “Injured Spouse Allocation” form with the IRS. The IRS can let you keep your share of the tax refund if you submit the form correctly.
The IRS normally determines this sum based on how much money was deducted from your salary for taxes the previous year by your employer. When you get a notice of seizure, file this form right away or with your tax return.
If you’re in the process of bankruptcy.
Your child support arrears cannot be erased under the bankruptcy code. You are permitted to restructure them and pay them over a three to five-year period. Child support arrears are treated as a priority debt by the bankruptcy court. It means they are paid off before any other debts.
Child support obligations are too significant to be discharged in bankruptcy. This a decision made by Congress based on public policy considerations. Your child support obligation is a priority debt in Chapter 13 bankruptcy. It is not dischargeable. You are required to completely refund any unpaid child support arrears. You must settle missed payments through your Chapter 13 repayment plan.
If your ex-spouse owes you child support.
The state child support enforcement office successfully collects payments from the other parent of your child. You can instruct the IRS to automatically confiscate that parent’s refund if you want them to.
Ask the court to order that child support be paid in this manner. File a petition if the child support enforcement office fails to collect child support payments on your child’s behalf. The Treasury Office will be informed immediately. It will then start the process of intercepting tax refunds. Tax refunds will be intercepted if the other parent of your child falls behind on payments.
The custodial parent might ask the court for help in enforcing your child support order. That is if you don’t make your required payments. If the court steps in, a judge may require uncooperative parents to appear at a hearing. It is commonly referred to as a “show-cause hearing” to justify their failure to make payments.
Delinquent parents could be subject to a number of enforcement measures. It comes in the form of passport loss, pay, and bank account garnishment. The court can opt for suspension of driver and professional licenses. You can face possible jail time.
It can use the IRS to make up for late or missed child support payments. The court can and will seize your state and federal tax refunds.
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Goldman & Associates Law Firm is here to with information about Child Custody and Divorce in the State of Michigan.