There are many considerations that have to be made when you and your spouse file for divorce, and even more if there are children involved. Determining the terms of your child support agreement must be thoroughly discussed and documented to ensure fairness and clarity.
This process may also raise questions about whether there are tax implications for child support in Red Bank, NJ. Understanding how taxes factor in from the outset is important so you know what to expect and can plan accordingly.
Tax Implications for Child Support Payments
According to the New Jersey Tax Guide, child support is not treated as taxable income when a payment is received. Parents paying child support cannot deduct the payment when they file their taxes. Because child support is neither deductible for the payer nor taxable for the recipient, it is not included on federal or New Jersey tax returns.
However, other tax-related factors must be considered, which can impact your child support requirements and tax return. Below is a closer look at what you need to know as you move forward.
Tax Considerations When Initially Determining Child Support
During divorce, a child’s best interests are carefully considered when making decisions regarding custody, support, and related matters. Once custody has been agreed upon, the other parent is responsible for paying child support to share in the child’s expenses.
When applying for child support, each parent’s taxable income is reviewed to determine how much regular payments should be. New Jersey’s child support guidelines apply to families with a combined net income of up to $187,200 per year. If the combined income exceeds this amount, courts will use the guidelines for the first $187,200 and may add a supplemental amount based on the child’s needs and each parent’s financial circumstances.
Claiming Dependents as Part of Child Support
Parents may be eligible to claim the Child and Dependent Care Credit on their federal tax returns to help offset the cost of childcare. This credit is based on qualifying work-related care expenses and begins to phase out for families earning more than $125,000 per year.
For divorced or separated parents, claiming a child as a dependent can be more complicated. The IRS generally allows the custodial parent—the one with whom the child spends the majority of overnights during the year—to claim the child as a dependent.
Even if a court order awards the exemption to the non-custodial parent, the IRS typically requires the custodial parent to sign Form 8332 or provide similar written consent. In New Jersey, these decisions may be outlined in your child support or custody agreement.
In these situations, parents may alternately apply the tax credit by taking turns claiming their children as dependents on their taxes. To ensure this is done correctly, speaking to an experienced lawyer and/or accountant is important.
Tax Implications for Failing to Make Child Support Payments
If you and your spouse have children and are divorced, child support is mandatory to ensure your children have all of their necessary needs met. Failing to make regular child support payments can result in disciplinary action by the New Jersey Courts Child Support Collections and Enforcement office to fulfill the requirements and ensure that monetary provisions are made.
To accomplish this, they may garnish wages or claim a portion of your tax refund. More aggressive actions may also be taken depending on how long you have been delinquent on making child support payments.
Discuss Tax Implications with a Legal Professional
While taxes are not directly applicable to regular child support payments, they do still have a role to play in ensuring your child is provided for. It is important to discuss tax implications with a legal professional when determining child support so all obligations are met and your child receives the care they deserve.
You will also want to ensure that you will be able to afford regular payments. A lawyer can provide valuable insight when helping you and your spouse understand the tax implications that accompany your child support agreement.
Contact an Experienced Monmouth County [PRACTICE AREA] Attorney at The Law Office of Jennifer J. McCaskill, LLC for Legal Advice
To learn more and get the help you deserve, call our divorce & family law firm in Red Bank. NJ at (732) 747-1882 or contact us online today.
You can also visit our law firm at 157 Broad St #111, Red Bank, NJ 07701.
