Does Child Support Get Taxed in New Jersey?
Posted June 27th, 2024.
Categories: Blog.
Filing your taxes each year can be confusing in general. When you add a child and co-parenting situation into the mix it can become even more complex. Contrary to some beliefs and other’s wishes, child support does not get taxed in the United States. For more information and to ensure your parental rights are protected, speak with a Cherry Hill child support attorney today.
Can a Paying Parent Deduct Child Support Payments From Income?
In New Jersey, like other states, child support payments cannot be deducted from the income of the paying parent. Child support payments are considered after-tax income, meaning that the payment plan was calculated based on the paying parent’s net income, not gross income. These payments will result in the paying parent having a reduced disposable income, but it ensures that the financial support being provided for the child is not diminished by any tax obligations. If the parents were married, money from the paying parent’s net income would be spent on the child’s growth and development. Money used to help raise your child is never considered a deductible expense regardless of marital status.
Do Child Support Payments Get Taxed for the Receiving Parent?
Child support payments are not taxed as income for the receiving parent. They do not have a legal obligation to report them as income when they file their tax return because child support payments are only intended to cover the child’s expenses. They are not meant to fund any personal or superfluous expenses for the custodial parent. If the receiving parent paid taxes on child support payments it would only result in less financial support for the child.
Does Having a Child Affect Taxes in Any Other Way?
It is essential that both parents be aware of and understand the potential tax implications of other aspects of their family dynamic. Allocation of tax credits and dependents can be impacted when a couple is divorced or co-parenting.
Only one parent can claim the child as a dependent when they file their taxes each year. Filing a dependent means exemptions and reductions in the amount of taxes that the parent has to pay. Typically the parent with whom the child resides most of the time, the custodial parent, is entitled to claim them as a dependent. However, other arrangements can be made given that both parents agree. For example, they could alternate years and take turns claiming the child as a dependent or they could negotiate for different terms.
There are other tax credits that parents may be eligible for. Both the Child Tax Credit and the Earned Income Tax Credit can provide significant financial benefits for eligible parents. However, claiming these benefits can be complicated especially when parents share custody.
It is recommended that co-parents speak with a tax professional or financial advisor to ensure that they have an understanding of their parental rights and obligations regarding tax matters. By addressing tax issues ahead of time parents can minimize conflicts and confusion down the line and focus on providing their child the best resources possible.
