Congress is currently considering bills that link unpaid child support with federal taxation. In general, these bills would make unpaid child support a “bad debt.” A custodial parent could deduct unpaid child support from gross income, which would then add the same amount as income to the non-custodial parent.
The National Council of Child Support Directors opposes efforts to change federal tax law based on clearly established legal principles and the long-term consequences to children.
Under current federal tax law the payment of child support has no tax consequences for either the custodial or non-custodial parent. Therefore, neither parent has an incentive to manipulate child support payments for tax purposes.
The current tax system is based on the well-established legal principle that child support is owed to the child. It is not a legal benefit to either parent. The duty to the child is both a social and moral obligation.1 Current proposals would undermine these long-held principles.
The change to the tax system would contravene another well-established legal principle -- that domestic relations law, including child support, is a matter reserved for the states pursuant to the U.S. Constitution. State courts, not federal, have the authority to determine what is in a child’s best interests, including decisions regarding child support. Making child support a taxable event would replace judicial discretion of a child’s best interests with parents’ economic considerations.
Treating unpaid child support as “bad debt” would have significant financial consequences for parents, children, and federal and state governments. Taxes paid by individuals depend on income levels and tax brackets. While custodial parents would pay fewer taxes, the non-custodial parent would benefit by trading unpaid child support for a much smaller tax obligation, and be relieved of further consequences for the non-payment of the past due child support. This reverse financial incentive to non-custodial parents is contrary to public policy.
The federal government most likely would benefit by increased tax revenue by making unpaid child support a taxable event. The federal government would collect more taxes from non-custodial parents. Conversely, custodial parents would pay fewer taxes. However, because earnings of custodial parents (primarily women) are much lower than those of non-custodial parents (primarily men), the federal government would receive a net gain in revenue collection --- at the expense of the child. Additionally, under any of the proposals, children would forever lose the benefit of the full amount of any unpaid child support.
The economic effect on states would be just as stark. States do not have uniform methods to track, receive or disburse all child support payments. Some are not tracked at all, such as direct payments between parents. To track all payments through child support enforcement programs and to keep records to issue tax forms would require significant modifications to automated systems at great expense. Additionally, state child support enforcement programs would lose federal incentives, because fewer federal tax refunds would be intercepted.
A tax system change would create the opportunity for greater conflict and confusion between parents. Tax law could be used as a weapon against each other. Parents may not receive proper legal advice when assisted with options for collecting the past due support, or taking a tax deduction.
In summary, child support should not be a taxable event. Established legal principles should not be contravened. Incentives for the non-payment of child support that benefit non-custodial parents and the federal government, impair states’ ability to collect child support at a greater expense, and promote the further breakdown of parental and family relationships is not sound public policy.
WHEREFORE, the National Council of Child Support Directors opposes legislation that makes child support a “bad debt” subject to federal tax remedies or that would otherwise make child support a taxable event.
1. Tamez v. Tamez, 822 S.W. 2d 688, Tex.App.Corpus.Christi,1991 (child support payments are not considered debt, but rather legal duty); Cramer v. Petrie, 637 N.E.2d 882, Ohio,1994 (obligation to pay child support arises by operation of law and is personal duty owed to former spouse, child, and society in general); Dept. of Health and Rehabilitative Service, Child Support Enforcement v. Holland, 602 So.2d 652, Fla.App.5.Dist.,1992 (duty to pay child support can be strictly legal based on common law or statute, or it can be strictly contractual, or it can be confusion of both); Williams v. Johnson, 584 So.2d.90, Fla.App.5.Dist.,1991 (duty of future support, which is duty owing to child, cannot be barred during child's minority); State, Dept. of Revenue v. Hubbard, 720 P.2d 1177, Mont., 1986 (whether child support obligation is court ordered is irrelevant to existence of the obligation; child support is a social and moral obligation imposed by law without court action).