Child support is money paid by an ex-spouse to the other spouse to support the care of their child. This post will discuss the tax implications of child support payments. Child support is a unique beast in the taxing arena. The federal government does not allow the paying spouse to deduct child support payments from their taxes. Whereas, for the receiving spouse, it is not included in income, so these payments are tax-free income for the receiving parent.
Generally, only the custodial parent may claim the child as a dependent. Claiming a child as a dependent allows you to take additional deductions, credits and exemptions for your child. Specifically, if you are single, you may be eligible to file for head of household which gives additional tax benefits. However, take note that the head of household exemption requires that you pay over one-half of the cost to maintain the home. Additionally, you may be able to claim the Child Tax Credit. Typically, only the custodial parent may claim these tax benefits, but it is possible to shift them to the non-custodial parent.
If you are the non-custodial parent and you pay over one-half of the child's support needs (and meet the other enumerated factors), then you may be able to claim your child as a dependent. Sometimes the divorce agreement will include a provision that allows each parent to share in the tax benefit of the child, usually by switching off on the years that they claim the child. If you work this into your divorce agreement, then your ex-spouse will need to fill out a Form 8332 to release the tax claim for the child to you.
To determine how Michigan treats child support payments it is probably best to speak to a family law attorney. Complicated tax issues are one of the many burdens that divorce can place on a family. However, with careful planning, it is entirely possible to manage.