Does Child Support Affect Your Taxes?
Are you going through a divorce in which children are involved? Then, you may be wondering if you will have to pay child support or if you are entitled to these payments. You may also be wondering whether such support will affect your taxes. If so, here’s what you should know if you need child support lawyer:
Who is entitled to child support payments after a divorce?
Under the law, parents are financially responsible for dependent children. In most cases, a dependent child refers to someone under the age of 18 years. There are situations, however, in which financial responsibility extends beyond 18 years.
A child may still be considered as a dependent after the age of 18 years if they are a full-time student. The financial obligation to a child who is a student may last until they have completed their first undergraduate degree or when they reach the age of 23 years. You may also be financially responsible for a dependent over the age of majority if they have a mental or physical condition which makes them unable to financially support themselves. You should note as well that under family law, parent includes birth parents, adoptive parents, and sometimes step-parents.
After a divorce, child support is normally paid by the parent who will spend the least amount of time with the child to the parent who will care for the child most of the time based on the custody agreement. Child support payments are meant to assist with child-care expenses. If one parent earns significantly more than the other, they may be required to pay child support to the other parent even if the child will spend an equal amount of time with both.
Are child support payments taxable?
Whether you are the payor or receiver of child support, the payments will not affect your taxes. In the past, when a parent who paid child support (payor parent) filed their income tax returns, they could claim a deduction for making such payment from their earnings. Parents receiving child support would then be required to pay taxes on the payments. Child support is no longer taxable. Therefore, parents making the payment can no longer claim for a deduction and those receiving will not be taxed for the increase.
How is child support calculated?
Child support is usually calculated in accordance with the government’s Child Support Guidelines which state that child support consists of a basic monthly amount referred to as the table amount and an amount for special or extraordinary expenses.
- Table amount
The table amount in a child support agreement covers basic expenses such as food, clothing and school supplies. This amount is determined by the annual gross income of the payor parent and the number of children. In each province, there is a Child Support Table that outlines how much you will be expected to pay. There is a threshold level of annual gross income below which you will not be required to pay child support. This threshold is set at $12,000.
Since each territory has different provincial tax rates, the table amount varies from province to province. If both parents live in Ontario, the Ontario table applies. However, if the payor parent lives in another province then the table for that province would be used to calculate payments. If the payor parent lives outside of Canada and the parent receiving child support lives in Ontario, the Ontario table will be used. If you want to know how much the table amount would be in your situation, you may use the Child Support Table Look-up provided by the Department of Justice.
- Special or extraordinary expenses
In addition to the table amount, a parent may also be required to cover special or extraordinary expenses. Typically, both parents will contribute to such expenses, depending on how much they make. If both parents are in the same income bracket, they will most likely split these expenses equally. Special or extraordinary expenses are both reasonable (within the means of the parents) and in the best interest of the child. This may include child-care fees, healthcare costs, insurance premiums, tutoring or private school fees, expenses for post-secondary education and expenses for extracurricular activities.
Do you need the help of a Toronto child support lawyer?
Using the Child Support Guidelines, you would think it is easy to calculate child support payments. But it often not as simple as it seems. There are cases in which the Child Support Guidelines are not enough. For instance, parents who are self-employed and those who receive stock options, commission and/or bonuses as part of their income may find it difficult to work out payment based on the standard table.
If both parents share custody, the table amount may need to be adjusted to account for the time that the receiving parent takes care of the child. Furthermore, as a child grows, their needs change. The child support agreement may at some point need to be adjusted to reflect changes in the special or extraordinary expenses. Sometimes, a parent will not provide full financial disclosure making the process more difficult.
If for any reason you are facing challenges in trying to finalize your child support agreement, give us a call at Baker and Baker Family Law. At Baker and Baker Family Law, our Toronto child support lawyer can help you work out these issues, hopefully without recourse to the court system. Your child’s right to a stable home environment, and to financial support that is fair and reasonable is our priority.