Author Topic: Tax Treatment  (Read 4816 times)

bcme

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Tax Treatment
« on: July 10, 2013, 04:53:53 PM »
Child Support should be taxable to the recipient and non-taxable to the payor as is alimony.

The reason for this is that much of the funds assocaited with Child Support are used for basic living expenses of the custodial parent, providing housing, transportation, cable, telephone, property taxes, etc. (Not trying argue this topic jsut stating the obvious) which all go to standard of living for the custodial parent.  This results in the Non-Custodial parent paying in some cases 50% more in pre-tax dollars than the receipient is receiving.

Example:  A divorced couple with three kids with support order and all amounts current have incomes as follows

Custodial Parent     $43,500
Non Custodial Parent     $94,200

Non Custodial Parent Child Support Obligation  $1,755/mo

Taxes on the Child Support amount transferred to custodial parent are $842/mo.  This means the Non-Custodial Parent is paying $842 in taxes every month above and beyond the Child support or in other words the total cost of child support to the non-custodial parent is $2,597/mo

If the CS was taxable by the Custodial parent the amount of taxes would be $210.  Assuming that we want the custodial parent to still get the same amount after taxes this would mean the non-custodial parent would increase their payment to $1,965/mo. 

for this example the offset provided by the court for taxes is $61 <-- from memory so might be way wrong.

I realize that this was process was developed long ago but in the age of computers this is all easily handled now and should be changed

KTM

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Re: Tax Treatment
« Reply #1 on: August 03, 2013, 10:52:35 PM »
Re-Post of Related Modified Thread

General Discussions / Re: Recieved My First letter from DCF
« on: August 17, 2012, 09:16:22 AM »

It would appear that Federal and State taxes need to be paid on income. I presume that in order to prevent double taxation on the same earnings there are laws in place (Federal?) with regard to Child Support which dictate who pays the tax, payor or recipient. I also presume that the team put in place to construct the Kansas Child Support Guidelines is aware of the laws and considers them in the determination of total amount of money to be paid or received in Child Support. In other words, the tax point is mute (silent) and it does not matter. Federal tax law states that the income is not taxable to the recipient. If it were taxable to the recipient than it would be tax deductible to the payor.

Kansas can not change the Federal Tax Laws. It must consider them when making it's decisions.

Additionally. THIS IS NOT AN CONSIDERATION BETWEEN MOM's AND DAD's. IT is an issue of two parents or any party responsible for raising a child in the United States of America. It does not matter what sex the payor is or what sex the recipient is. This is Federal Law.

So, I also presume that if the tax responsibility shifted than the % of income due by the payor would also change. i.e. The if the payor gets to deduct the amount of Child Support paid from a Federal Tax return than the % of income paid to the recipient would increase to cover the estimated tax burden by the recipient.

The current Federal laws make for much simpler calculations by the states because there is no need to estimate the Federal tax burden in the equation. This is because the State's goal is to create a net result where the amount of income to each party raising children to a level above what would qualify them for support benefits paid by the State of Federal Government for housing, food stamps and health care. Thus reducing the tax burden of it's residential population and businesses.

Rick

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Re: Tax Treatment
« Reply #2 on: April 26, 2014, 10:37:38 AM »
If it takes tools to earn the money a person makes. He or she wouldn't make the money with out them.  Then those expenses should be allowed.