Tax season is upon us, so now is the time to begin thinking about how financial aspects of your life, such as child-related expenses, can impact your taxes.
Here are some general rules of thumb when it comes to taxes and dependent expenses and benefits:
- Government Economic Stimulus Payments – These are not taxable. The government pays the stimulus to the parent who claims the child as a dependent for their taxes. However, both parents may choose to share it, especially if they have joint custody.
- Child Support – Child support is not taxable. The tax is paid when it is initially received by the party who earned the income. The support payment is not taxed and is not reported on tax returns as taxable income.
- Claiming a Child as a Dependent – The parent who has primary custody of the child usually claims them as a dependent on their taxes. There are exceptions, such as if the parents agree to a different arrangement or if a judge orders an alternative situation. In those cases, the IRS usually requires the custodial parent to sign a waiver recognizing that the other parent is claiming the child.
- Tax Deductions for Educational Expenses – There are potential tax credits and/or deductions for some education expenses and for contributing to college savings plans, such as a 529 college savings plan.
Some child-related tax benefits are capped or reduced for higher-income earners. In those cases, a parent may be able to use those benefits as an additional value to allocate in a divorce or custody proceeding to assist with a settlement.
Seth Harris, a senior associate at the PMK family law division, is available to help you work through any issues related to divorce and child custody, as well as all family law needs. For more information, go to https://hawaiilegal.com/practice-areas/family-law-2/.
Note: The attorneys of PMK do not provide tax advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax advice. You should consult your own tax advisors before engaging in any action.