Question

Mason and Janet were divorced in 2015. Their daughter Kelly lives with Mason, and Janet pays $650 per month of child support. Which of the following statements are true?
a. Mason must claim the child support as income.

b. Janet can deduct the child support as an adjustment to income.

c. The child support is income received by the child and provided for her own support.

d. Child support payments received are not taxable income, and child support paid is not a deductible expense.

Answer 1

Answer:

The answer is option "d."

Explanation:

To answer this question, you need to keep in mind that child support is a "tax neutral" event according to the IRS. Interestingly, alimony or spousal support used to be considered as a tax deductible event, but the rules have now changed and even alimony is now considered tax neutral.

Lets take an example to answer the question. If a parent were to go to a toy store and buy a plane model for $ 200 as a birthday gift for their child, would the parent include it as a tax deductible transaction? No, because its a personal expense which is not categorized as tax deductible by the IRS. In the case of the question, rather than spending money on the toy store, Janet is paying Mason the money which will be used to meet the personal support expenses of the child which is similarly not tax deductible.

Mason does not have to consider child support as income either since the money is specifically provided to meet any expense of the child. The child does not have to claim it as income either since the child can think of it as pocket money. Pocket money is not required to be reported to the IRS as income.

In light of the above, the correct answer is option D. Child support is neither taxable income nor a tax deductible expense.