Why Isn’t Child Support Tax Deductible or Pre-Tax?

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Dear Esq.,

Thank you for reading my e-mail. You are the one I was hoping to contact and get some insight on an issue that has me quite perplexed. The issue is “Child Support”. It is based on gross income and then age of children and number of children. Right? Well then a dollar amount gets attached and awarded by the courts. Right?

The same money is paid to the custodial parent on a weekly or monthly schedule.

Why is not that child support pre-tax? It only makes sense that child support being based on gross income would be deducted pre-tax. Why is it taxable for a noncustodial parent and non-taxable to a custodial parent? I am so confused. What can I do to fix this? And what is being done ? Thank you and I look forward to your response.

Taxed

Dear Taxed,

Many people share your view that it is unfair that paying child support provides no tax benefit to the noncustdial parent, while the custodial parent garners the benefit of untaxed “income”. However, when looked at from the perspective of the tax agencies, it makes a bit more sense, although this really offers no solace.

Whenever there is a taxable event on one side of a giving/receiving equation, there must be an equal off-setting event on the other side of the equation. That is one of the reasons that a business expense will almost always incur a taxable event (such as income) for the party who received the business expense funds. For example, when you purchase office supplies for $100.00, which is a tax-deductible business expense, the office supply store from whom you purchased those supplies will experience a $100.00 increase in taxable income.

This can be expressed by this formula:

{The IRS giveth = the IRS taketh away}

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You can see this play out in an area closely related to child support – that of spousal support, which is sometimes still known as ‘alimony’. Here the amounts paid by the paying ex-spouse are tax deductible, and they must also be declared as income by the receiving spouse.

Some states still allow courts to order something called “family support”. This was an effort to give a greater tax advantage to the noncustodial parent, by combining spousal support and child support into one lump sum which was slightly more than the amounts would have been separately, calling it “family support”, and making the whole thing tax deductible. Don’t do this! The IRS has been known to audit the expense, and disallow a portion of the deduction equal to the amount that should have properly been ordered as ‘child support’. This leaves the payor having paid more, but still only getting the lesser tax benefit.

Another, public policy-related reason that child support does not incur a taxable event is because in theory child support goes only to the necessities required in providing for the children: food, clothing, and shelter. This is why things like the cost of child care are added on top of the base amount of child support. When married, you were unable to deduct the cost of buying your children clothing, and it’s no different now that you are no longer living in the same house.

Finally, and as an aside, the child support formulas of nearly all states take into account only: the gross income of both parties, the number of children, and the amount of time the children are with each parent. Rarely, if ever, do they take into account the age of the children, other than to discontinue the child support when the child turns 18 (in some states child support continues until the child either graduates from high school or turns 19, whichever comes first).