When parents divorce, the noncustodial parent often pays child support to the custodial parent to help pay for food, clothing and other needs for the child. At tax time, parents may be confused about how to handle child support payments. Federal law does not consider child support payments to be income for tax purposes. If you live in Michigan, your state follows the federal law.
Michigan law does not consider child support payments to be income. Thus, the receiving parent does not have to report child support payments on her state tax forms and does not pay state taxes on child support income. Child support income is considered aid for the benefit of the child rather than income because the parent does not benefit directly from the child support. In other words, he cannot use it to buy items for himself rather than his child.
Some states allow parents who pay child support to deduct child support payments from their taxable income every April. Michigan does not have a provision like this. In Michigan, the parent who pays child support cannot list it as a deductible expense because it is the same amount she would pay to support her child if she were still living with the other child's parent, and married parents cannot deduct most expenses for their children from their state taxes.
Federal Tax Law
Michigan's policies follow federal tax law, which states that child support payments are tax neutral: they are not considered income for tax purposes and the payer cannot deduct the payments from his taxes. Thus, the parent who receives child support does not have to report it as income on his federal taxes or pay taxes on it, and the parent who pays it cannot deduct it as an expense from his federal taxes.
Other Tax Issue Related to Child Support
When parents divorce, federal law gives the dependency exemption to the custodial parent. However, the custodial parent can release the exemption to the noncustodial parent, and often does so during child support negotiations. The same parent who claims the child as a dependent on her federal taxes must also claim the child as a dependent on Michigan taxes. The custodial parent must attach IRS Form 8332 to her tax return each year to demonstrate her release of the dependency exemption.