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If you have a court order to either pay or receive child support in Wisconsin, you probably have many questions regarding how your taxes are affected. Many people wonder if child support is taxable income in Wisconsin; after all, spousal support or maintenance is taxable, so many assume that child support is taxable as well.
The short answer is that you do not have to pay tax on the child support you receive, and child support payments cannot count as a deduction when you are filing your income taxes. Depending on what the child support order includes, you may be able to claim your children as dependents on your annual taxes, or you and the other parent may switch off years. For example, one parent could claim the child or children as dependents on the even-numbered years while the other parent gets the odd-numbered years. Read on to find out more details on child support payments and how they are taxed.
Wisconsin Child Support
Like most other states, Wisconsin has a statutory formula to establish the amount of child support paid by parents. The amount of support is a percentage of the gross monthly income of the paying parent. The percentage rises with each child in need of support. If a parent takes on additional expenses to care for the child, such as paying for health insurance, the monthly amount is adjusted, called by the system a deviation. The support amount can deviate up or down, depending on which parent is paying what expense in relation to the statutory amount established by state law.
Adjustments can also be made if one parent covers additional costs for special schooling, lessons, or trips, basically anything geared towards teaching the child or allowing the child to participate in activities meant to enrich the child’s life. If one parent pays for a particular activity, then the monthly cost could also go up or down accordingly if the terms outlined in the order allow for those types of deviations.
A significant issue to consider when calculating child support is if the child has special medical needs that require additional health insurance or if the requires health care above what regular insurance will pay. Those costs can be divided between the parents. Still, it is always a good idea to either have a court order or some agreement in writing in case of misunderstanding later.
Wisconsin child support is something that the state takes very seriously. If you have an order to pay child support in Wisconsin and you fail to pay the support, there are many ways the state can force you to pay that support, including garnishments and intercepting your state tax return, just for starters. If you fall behind on your payment and do not offer the court a practical reason, you will be liable for child support arrears, which you will have to pay and are subject to annual interest, compounding the debt.
If you cannot afford your child support payment, you must contact the court as soon as possible to avoid being penalized. The Wisconsin Department of Children and Families can intercept your tax return to apply those funds to your child support arrears and even to pay medical costs for the child or children. It is commonly referred to as the Child Support Tax Intercept Program. If you have arrears or other costs that you have not been paying, the Tax Intercept program will mail you notice before intercepting your taxes. If you owe child support and remarry, the state can even take your new spouse’s tax return (if you file jointly) to cover your child support arrears. For more general information read our article, Recent Changes to Wisconsin Child Support Laws 2022
Is Child Support Taxable?
The answer is no; child support is not taxable income for the person who receives it. The support payment is taxed as regular income for the person who pays it, and it is not deductible. The parent who received the child support payments is also barred from using that amount towards what is known as an Earned Income Tax Credit when they file their federal return. An Earned Income Tax Credit is a calculation the IRS and the State of Wisconsin use to award low to moderate-income households a tax break by either returning more money to the household or lowering the amount of tax they have to pay that year. A person considering applying for the EITC must be employed for consideration but does not have to be employed year-round.
Can I Deduct Child Support Payments On My Taxes?
The answer is no, and you cannot deduct child support payments that you make on a tax return. As discussed above, you may be able to claim the child or children as a dependent pursuant to the court order in place handling these issues. If possible, it is wise to arrange with the other parent to outline who gets to claim the child or children on their yearly tax return and why. Typically, the parent who has the children most of the time gets to claim that child or children. Still, sometimes parents agree to switch off years, each having a turn claiming the children as dependent on their annual tax return. Another possible option is if there is more than one child, the parents will each claim one or more children on each annual income tax return.
The best thing to do if you have questions during or after a divorce or paternity suit regarding child support and tax implications is to consult with an experienced Wisconsin family law attorney who can evaluate your situation and provide guidance. It is always better to ask before a potential problem with child support or taxes presents itself than to try and unravel a mess after the situation occurs.
If you have questions or concerns about your child support and its tax impact or other questions about Wisconsin family law, the experienced attorneys at O’Flaherty Law can assess your situation and help you to achieve the best possible result in your matter. Feel free to reach out to O’Flaherty Law today and schedule a consultation, and we would be happy to help you.