Divorce can bring significant changes to your finances. Some of these changes – like living with just one income instead of two – are easy to understand, while others may require professional help to prepare for. Those seeking divorce in Illinois frequently wonder whether spousal support and child support are taxable income or tax-deductible. Whether you are paying or receiving support, it is important to understand how these payments are taxed.
Is Child Support Taxable Income?
Child support is considered “tax neutral,” meaning it is neither taxable income nor tax-deductible. The parent who is receiving child support does not pay taxes on those payments, and the parent who pays child support cannot deduct the payments from their taxable income. This is because even if parents were not divorced, they would be paying for their children’s needs with their income after taxes are already paid. The only difference is that instead of buying things for your child yourself, you are giving the money to your ex.
Is Spousal Support Taxable Income?
Spousal support payments are also tax neutral, as long as they began after January 1, 2019. Spousal support payments from divorce decrees finalized before that date may be tax-deductible for the payor and taxable income for the recipient, but any agreements after that date, including modified spousal support orders, are tax neutral.
Are There Any Other Tax Benefits Parents Can Take Advantage Of?
As part of their divorce order, parents should decide who is going to claim each child as a dependent when taxes are filed. Without a written agreement, the parent with the majority parenting time is generally considered the “custodial parent” and will be the parent who can claim the children as dependents. Only one parent can claim a child every year, but parents can agree to alternate years or allow a certain child to always be claimed by a certain parent. The parent who claims a child as a dependent can also claim the cost of that child’s care, such as daycare, preschool, or summer camps, as tax-deductible expenses.
Call a Wheaton, IL Divorce Lawyer
Difference divorce arrangements can have very different impacts on your taxes. Before you agree to a divorce decree, consult with an experienced DuPage County divorce attorney at The Stogsdill Law Firm, P.C.. We will help you understand the tax implications of a proposed divorce settlement and help you ensure you will not have any unexpected surprises when you file your taxes after divorce.