Taxes and Children of Divorced Parents

As the noncustodial parent, you will likely owe child support. The amount is generally established based on New York child support guidelines calculations, with some room for negotiating a fair monthly amount. In addition, you can negotiate with your spouse to reduce your future tax liability. The actions you take during mediation can put more money in your own pocket during the years following your divorce.

Child support payments versus alimony

Although you may think you prefer to pay child support than alimony, consider the tax advantages you receive when you pay spousal support. Your child support payment is not tax deductible, whereas your former spouse does not have to report the payments as income. Alimony, however, works in the opposite direction — you can deduct the amount from your taxable income and your former spouse is instead liable for taxes on the payments.

Claiming child tax credit and dependency exemptions

Only one person can claim a dependency exemption and a child tax credit for each qualifying child on a tax return for a given year. Consistent with the law's child residency requirements, the IRS allows the custodial parent to reap the benefits if your divorce decree is silent on the issue. However, your spouse is permitted to transfer these exemptions and credits to you, which can significantly reduce your tax liability. To do so, your spouse must sign and you must submit IRS form Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. You can negotiate to receive this tax-saving benefit every year or on specified years. Many couples agree to alternating years.

Earned income credit

Regardless of the agreement you negotiated about the child tax credit and the dependency exemption, the earned income credit (EIC) is nonnegotiable. If the custodial parent qualifies for an EIC, this credit is nontransferable to the noncustodial parent.