Child support payments paid to the “custodial” parent are not considered income for taxation purposes and child support payments by the “non-custodial” parent are not deductible in calculating the amount of income tax owed. However there are numerous other taxation benefits to having children.
The Federal Government has long given incentives to parents to have children. This came from the idea that the family unit needed children and society was better off with more children. To this end, the government gives benefits to parents with minor children in order to help offset the cost of raising the children.
These benefits are not small. There exists a tax deduction for each dependent child, an earned income credit for each child, a child tax credit for each child, deduction for medical expenses for each child, and a head of household status benefit. Unfortunately these benefits are complicated when the parents decide to split up.
The dependent child tax benefits, such as credits and deductions, are only available to one person. This is simplified when two people file jointly, such as when married persons file jointly. But when two people divorce they are not eligible for joint tax returns. In this way, if two people may both claim the same child, they must decide which one will claim the benefit.
There are various solutions for parents who wish to equalize the costs of raising their children, but are divorced. In some cases the parent who pays the child support will collect the tax benefits. Other times the parents find it more appropriate for the care giver to collect the benefits, despite receiving the child support payments. In other situations the parents create a complex cost analysis that perfectly divides the monetary costs and benefits of the children.
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