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Child support is often a challenging, perplexing matter. From the non-custodial parent’s perspective, child support represents a significant portion of their annual income. From the custodial parent’s perspective, child support payments are a substantial portion of their income. In either case, child support is often on parents’ minds when they’re filing their taxes each year.
Are Child Support Payments Tax Deductible in Arizona?
Let’s start by addressing the matter from the non-custodial parent’s point of view. Whether you’re making your child support payments on time or dealing with child support arrears, it’s safe to say that child support takes a major chunk of your paycheck every pay period. Considering how child support withholding orders can represent up to 60% of your income in some cases, that’s a substantial piece of the financial pie that you have absolutely no control over.
While it would certainly lessen the financial blow for child support payments to be tax deductible, that’s unfortunately not the case. Whether we’re talking about federal income taxes or state income taxes, the answer is the same — child support payments are not tax deductible.
You may be shaking your head in disbelief, but if you think about it long enough you’ll realize that’s the same position that married households are in. In your case, it’s easy to see exactly how much of your income goes to your child and former spouse. In a married household, the funds used to support the children are intermingled with all of the other standard household expenses. You wouldn’t expect a married household to deduct the money they use to feed, clothe, and house their children from their taxable income, so it wouldn’t be fair for the IRS to grant a tax deduction to separated or divorced parents.
Does Child Support Count as Income in Arizona?
On the other side of the fence, it’s common for custodial parents to wonder whether the child support payments they receive are considered taxable income. After all, child support payments often represent a large percentage of household funds used to buy food and clothing, and cover housing expenses. So, does a non-custodial parent have to pay taxes on child support payments received?
The answer is no — child support payments are not considered taxable income in Arizona. The custodial parent already paid federal and state income taxes on these funds, so it wouldn’t make sense for the IRS or Arizona Department of Revenue to tax it again. That would constitute a double-tax, and more importantly it would take money directly away from the children who need it most. Neither of those are fair or appealing to the government, so child support payments are essentially tax-free income for the custodial parent.
Which Parent is Able to Claim the Child as a Dependent for Tax Purposes?
Who can claim head of household when the parents are divorced? Can two people claim head of household? These are all common questions regarding who gets to claim a child as a dependant for tax purposes. Fortunately, the answer is pretty straightforward.
According to the IRS, the parent with whom the child lives for the majority of the year is the default head of household. In other words, the custodial parent is typically the parent who gets to claim the child as a dependent for their tax returns (see IRS Q&A).
The only exception to this default assumption would be when a custodial parent signs and submits Form 8332, Release of Claim to Exemption for Child by Custodial Parent. This typically occurs when the non-custodial parent is paying more than 50% of the child’s supportive income, so it makes sense for the non-custodial parent to receive the tax break for claiming the child as their dependent.
Whether the custodial parent assumes the default designation or allows the non-custodial parent to claim the child as a dependant with Form 8832, only one parent gets the tax break. There cannot be two heads of household claiming the same child as a dependant.
How Long Does it Take to Get Back Child Support From Taxes?
When a non-custodial parent falls behind on child support payments, the Arizona Division of Child Support Services (DCSS) may step in to forcefully collect the child support arrears. There are a number of enforcement remedies at their disposal, including wage garnishment, property liens, seizing financial accounts, and intercepting tax returns.
The latter, formally known as “offsetting,” is a particularly effective means of collecting unpaid child support in a lump sum payment. Instead of garnishing small amounts from the non-custodial parent’s paycheck or waiting for them to sell property with a lien on it, DCSS can easily intercept state tax returns from the Arizona Department of Revenue. They can also work with the IRS to intercept federal tax returns.
If the non-custodial parent files individually, you may receive the offset in as little as 2 – 3 weeks. If the non-custodial parent remarries and files their taxes jointly, it may take up to six months to sort things out before disbursing the funds. This is because the non-custodial spouse has no obligation to pay child support, so their portion of the income tax return cannot legally be seized (and if it is, it must be returned).
How to Stop DCSS From Taking Child Support From Your Tax Refund
Non-custodial parents with child support arrears who don’t want to have their income tax refund offset by the IRS or the Arizona Department of Revenue have a few options at their disposal. The easiest course of action is to adjust your withholdings with your employer so that you end up owing the IRS at the end of the year instead of being eligible for a tax refund. If there’s no refund to offset, the IRS obviously can’t seize anything.
Non-custodial parents who remarry may find themselves in a bit of a pickle here. You and your spouse could file income taxes separately so that your spouse’s income tax refund is not affected by your child support arrears, but you’ll lose out on the valuable benefits of filing jointly. Instead, it may be wiser for your spouse to file an Injured Spouse Allocation Form with the IRS. If the IRS or Arizona Department of Revenue seizes your tax return, this form would allow your spouse to claim their share of the tax return and have it returned to them.