Child Support Is Always Tax-Neutral

While alimony is considered a taxable event, child support is always tax-neutral, meaning it doesn't affect taxes in any way. This can provide an incentive to the ex-spouse who is making the payments to attempt to classify part of child support payments as alimony, especially as state laws increasingly complicate the requirements for support. In recent years, for instance, parents have been required to make payments for college education. No matter how big the check - or how long a parent has to write it - the tax-neutral rules still apply.

Couples with minor children must also decide which spouse takes the dependency exemption, the childcare credit, and medical deductions for a dependent child. As long as the divorcing spouses negotiate and honor their agreements in good faith, they can save themselves money and aggravation.



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TWO CONSIDERATIONS – In a divorce, two tax considerations are 1) tax consequences, which include incomes and deductions of the spouses, number of dependents, credits, tax rates and the amount of tax paid to avoid penalties, and 2) legal liabilities, particularly those associated with filing a separate or joint return.

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