Child support is seemingly unfair for divorced or legally separated parent. The IRS or Internal Revenue Service sets rules for those payer or receiver of child support. The reason is to control any deductions and exemptions that is a taxpayer allowed. Your divorce settlement will explain how child support affects your taxes. It is important to seek help to an experienced professional who really understands the agreements on child support.

Non-Taxable

Fortunately, payments for child support are not taxable. However, the parent who makes the payment for child support can’t deduct it from their income and the parent who received the payments can't claim it as an income. To remain the child support non taxable, it must be designated to your divorce decree as “child support”. Even if the payments and receipts don't affect your taxes, there is tax consequence related to the payment for child support.

Exemption

According to the IRS, to claim the child support as an exemption, the parent should provide that person's total support more than half each calendar year.

Who can get the Child Tax Exemption?

1.    Parents must be:
      •    Divorced or legally separated.
      •    Legally separated under a written separation.
      •    Living separately at all time for the past six months of the calendar year.
2.    The parent that can provide more than half of that child’s support each calendar year.
3.    If one or both of them has the custody of the child more than half of the year.

The non-custodial parent can also claim if they are both agreed and these criteria are met.

1.    If a custodial parent signed in a written agreement and stating he/she will not claim the child as a dependant.
2.    The divorce final decree, which states a custodial parent cannot claim the exemption for a coming tax year and the non-custodial parent will attach all appropriate documents to his/her tax return.
3.    The divorce final decree, that allows the non-custodial parent to claim the child as a dependant together with attached statement that saying there is atleast $600 given to support the custodial parent.
4.    By using form 8332 from the IRS, the non-custodial parent must sign here. Both custodial and non-custodial parent must be sign the form and attach it to the non-custodial tax return.

Negotiating the Tax Exemption

This exemption cannot be split by the parents according to the IRS rules. Only one parent can claim the child as a dependant for the tax year. It is also negotiable who can claim the exemption on yearly basis or a long term basis. The first parent can claim the exemption for the first year and the second parent can claim it after the first parent.