Introduction
When a child’s parents belong to separate households, one (or sometimes both) parent(s) often make child support payments to the other parent to provide for the care of the child. This article focuses on the tax impact of child support payments made pursuant to a court order or written agreement dated after April 30, 1997, which today represents the majority of such payments.
Child support payments made pursuant to a court order or written agreement dated after April 30, 1997, are generally not tax deductible for the payer, meaning that they do not reduce the taxable income or tax payable of the payer.
Furthermore, these child support payments are not taxable in the hands of the recipient, meaning that they do not increase the taxable income or tax payable of the recipient. However, child support payments can have other tax implications, two of which are discussed below.
Effect of Child Support on Spousal Support Deductibility
Spousal support payments, in contrast to child support, are tax deductible for the payer and taxable in the hands of the recipient if certain tests are met. (See our related article on spousal support.) However, spousal support is only deductible to the extent that total support payments exceed any required child support payments.
Effect of Child Support on Child Tax Credits
Parents are generally entitled to claim tax credits based on the number of children they have. However, if a parent is paying child support payments with respect to a child, that parent is not entitled to a tax credit for that child. The exception to this rule is if both parents are paying child support to each other. This sometimes occurs when parents have joint custody and pay support to each other in different months. In that case, subsection 118(5.1) of the Income Tax Act applies, and neither parent is prevented from claiming a child tax credit by virtue of their paying child support.
In situations where both parents are eligible, the parents have to agree which one of them will claim the credit, as only one credit can be claimed per child. If both parents claim a credit for the child, neither parent will receive the credit.
Examples
Example 1:
Arjun and Riya separated on January 1, 2023, and Riya has custody of their child. Pursuant to a court order, Arjun pays Riya $1,200 per month in child support and $600 per month in spousal support, for a total of $1,800 per month in support payments.
Up to December 31, 2023, Arjun pays all the amounts required by the court order, namely $14,400 in child support and $7,200 in spousal support, or $21,600 in total support payments. Arjun is entitled to deduct $7,200 for spousal support payments in 2023, and Riya has to include $7,200 in her income. No deductions or inclusions are made for the $14,400 in child support payments.
In 2024, Arjun only pays Riya $16,000 in total support payments. The Income Tax Act deems the $16,000 in support payments to be broken down as follows:
- $16,000 total support payments made
- $14,400 child support payments for 2024 required by court order
- $1,600 spousal support payment made
For 2024, Arjun can only deduct $1,600, and Riya only includes $1,600 in her income.
Example 2:
Nikhil and Meera have joint custody of their daughter Anika. Pursuant to a 2022 court order, Nikhil pays child support and spousal support payments to Meera. Meera can claim a tax credit for Anika, but Nikhil cannot.
Example 3:
Nikhil and Meera have joint custody of their daughter Anika. Pursuant to a 2022 written agreement, Nikhil pays spousal support payments to Meera but does not pay child support. Either Meera or Nikhil is permitted to claim a tax credit for Anika but not both.
Example 4:
Nikhil and Meera have joint custody of their daughter Anika. Pursuant to a 2022 written agreement, Nikhil pays child support payments to Meera in some months, and Meera pays child support payments to Nikhil in other months. Either Meera or Nikhil is permitted to claim a tax credit for Anika but not both.
Example 5:
Nikhil and Meera have joint custody of their daughter Anika and their son Aarav. Pursuant to a 2022 written agreement, Nikhil pays child support payments to Meera for Anika, and Meera pays child support payments to Nikhil for Aarav. Only Meera is permitted to claim a tax credit for Anika, and only Nikhil is permitted to claim a tax credit for Aarav.
Conclusion
The tax implications of child support payments can vary significantly depending on the specific arrangements between parents. While child support payments made pursuant to court orders or agreements dated after April 30, 1997, are generally not deductible or taxable, they can still affect spousal support deductibility and child tax credits.
For further guidance on child support payments or to navigate complex tax situations, consult with a professional to ensure compliance and optimize your tax strategy.
This article is written for educational purposes.
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