Although many types of income are subject to reporting on federal tax returns, child support is a matter that an Arizona parent does not need to worry about. Child support is not considered income for the parent who receives the payments. Child support is also not deductible by the payer. However, there are some issues related to divorce and children that do need to be considered in preparing a tax return.
Because claiming one’s dependents can result in a lower taxable income, either divorced parent of a child might want to take the related deduction. However, tax laws require that a dependent be reported only on one return. In this situation, there should be an understanding prior to filing so that there are not problems for either party. Further, claiming one’s child may also provide the ability to obtain a child tax credit, which is normally the right of the custodial party. However, the custodial parent could set this right aside by signing IRS Form 8332, which must be signed by both parents and attached to the return of the non-custodial party in this situation.
During the period in which matters such as custody and child support are negotiated, parents could request tax return rights in proportion to support obligations. Tax return issues could also be used to bargain for other interests. These determinations should be recorded in the final divorce documents.
Some financial aspects of a divorce settlement, including spousal support, carry tax obligations or benefits. A parent might want to discuss the potential terms of a divorce with both financial and legal professionals in order to obtain a clear view of how certain outcomes could affect their financial well-being.