Minnesota residents may not be aware that the Internal Revenue Service treats spousal support and child support payments very differently. Spouses who pay alimony can include these payments among their deductible expenses when they prepare their personal income tax returns, and the spouses receiving support are required to report them as income. However, child support cannot be used as a deduction by noncustodial parents, and custodial parents do not have to report those amounts.
These tax rules are straightforward, but determining which parent may list the child in question as a dependent on their personal income tax returns can be more complex. Noncustodial parents sometimes assume that they will be able to claim the child as a dependent because they are paying most or all of the their expenses, but the IRS usually makes this determination based upon which parent spends the most time with the child. This means that custodial parents are generally able to claim children as dependents even if they pay less than half of their expenses.
However, noncustodial parents are able to claim this deduction in certain very specific circumstances. For this to happen, the custodial parent must execute an agreement stating that they will not be claiming the child as a dependent, and an IRS Form 8332 signed by both parents must be attached to the personal income tax return submitted by the noncustodial parent.
Experienced family law attorneys will likely be familiar with these tax rules, and they may bring them up during divorce negotiations to prevent conflicts developing in the future. Attorneys may also suggest a compromise solution when parents are unable to reach an agreement regarding child tax exemptions. While the IRS does not allow this deduction to be shared even by parents who have joint custody, it does permit parents to take turns and claim it every other year.