Is Child Support Taxable in Tennessee?

person doing taxes with computer and calculator

While child support as a concept is not necessarily difficult to understand, many parents are unsure whether these payments are taxable or tax-deductible. Child support payments have some complex tax implications but whether you are the paying or receiving parent these contributions are not taxable. Child support is a part of family law designed to ensure that children receive monetary support from both of their parents and do not suffer financially from the separation or divorce. A Memphis, Tennessee child support lawyer can assist with any child support questions or disputes.

Are Child Support Payments Taxable for a Paying Parent?

No, though some may wish that it were true, in any state child support payments cannot be used as a tax-deductible for a paying parent. The IRS considers child support non-taxable as it is simply a transfer of funds between two parents for the benefit of their child. Alimony, for example, is a mandatory financial contribution that one spouse may make to the other after a divorce. Alimony is designed to act as income for the receiving spouse who may have a lower earning capacity. These payments are taxable and tax-deductible because they are considered income as opposed to child support which is a transfer of money.

Does a Receiving Parent Have to Pay Taxes on the Payments?

Likewise, a parent who receives child support does not have to report those payments as income when they file their taxes. Child support money should not be used for personal expenses for the receiving parent, like new clothes or solo vacations. The purpose of child support payments is to increase the financial ability of the custodial parent to support the child. The money should only be used for expenses like housing, food for the child, clothes for the child, educational expenses, medical expenses, transportation, etc.

Are There Other Related Tax Implications?

While child support does not directly impact taxes for either parent, other aspects of the family structure can have tax implications. Take the following into consideration.

  • Only one of the parents can claim the child as a dependent. The custodial parent generally has this right. Claiming a dependent can lead to tax savings like exemptions, deductions, and an overall lower tax liability.
  • The custodial parent may be eligible to claim the Child Tax Credit which is a partially refundable credit that helps low or moderate-income families reduce their tax liability.
  • The custodial parent may also be eligible for the Earned Income Tax Credit which acts similarly to the Child Tax Credit. Any deductions and exemptions will be beneficial to reducing the amount of taxes a parent owes.
  • While the noncustodial parent will likely not qualify for these programs, the two parents can agree to alternate claiming the child as a dependent each year or come up with an agreement for the custodial parent to waive their rights to these tax benefits in exchange for higher child support payments.