Do I have to pay taxes on child support?
In Illinois, child support awards are not taxed. Child support is calculated based upon the payor’s “net” (after tax and allowable deductions) income. Note that the deductions allowed for child support purposes are not necessarily the same deductions that a person is allowed by the IRS. The state of Illinois has its’ own guidelines regarding which deductions are allowed to be taken from gross income for the purpose of paying child support.
In some scenarios, child support may be part of a larger support award that is called “unallocated support”. Unallocated support is just general “support” in an agreement, meant to encompass both spousal support and child support, without specifically “allocating” the child support and “allocating” the maintenance portions. Maintenance is usually taxable to the payee and deductible to the payor. Unallocated support, in Illinois, is entirely taxable, including the child support portion. This can be a large incentive to a payor spouse to agree to a larger overall number because of the tax deduction they receive as a result of paying unallocated support. Unallocated support awards are one of the few situations where child support can be “taxed”. Generally, at this time and under current law, the parties must agree to an unallocated support award.
It is important that parties going through a dissolution of their marriage speak to a tax expert, such as an Accountant, when entering into a complex marital settlement agreement. Legally, in the state of Illinois, family law attorneys are unable to give their clients tax advice. Thus, it is important to consult with a tax professional regarding the implications of any and all support scenarios prior to entering into an agreement on support, taxes, dependency exemptions, and the like.