Child Support and Taxes

[willow26]

Hello,
Can I give stock to the custodial parent instead of cash payment for child support? Since the custodial parent is in low tax-bracket, the tax liability would be 0% up to a certain amount. I will appreciate your insight regarding this.

 

[Just Blue]

Hello,
Can I give stock to the custodial parent instead of cash payment for child support? Since the custodial parent is in low tax-bracket, the tax liability would be 0% up to a certain amount. I will appreciate your insight regarding this.

Are you paying directly to CP or are your wages garnished by the state?

 

[Taxing Matters]

That depends on the applicable child support law and how the child support is being paid. If the support is being paid through a child support agency I suspect they want checks and won't accommodate you providing stock. You'd also need the agreement of the parent you are paying. There is nothing in tax law that prevents you from doing it, however.

 

[willow26]

Thanks for your reply. We're not going through any child support agency because we had a very amicable split. There was nothing mentioned in the decree except the amount to be paid. The custodial parent is in complete agreement about the arrangement. On another note, can I gift my ex with stock in the future whenever she needs additional financial help?

 

[davew9128]

What is your TAX question?

 

[willow26]

My question is, if I gift stock to my wife instead of cash payment as additional financial help above and beyond alimony, will it cause red flags when I file the gift return?

 

[LdiJ]

My question is, if I gift stock to my wife instead of cash payment as additional financial help above and beyond alimony, will it cause red flags when I file the gift return?

The amount that you would be giving her for child support and alimony would not be a gift at all. Any amount that you give her above and beyond child support and alimony would be a gift, but it would only be a reportable gift if it exceeded $15,000 in any one calendar year.

 

[willow26]

Thanks for all your replies. From above, I can conclude that child support can be paid via stock transfer. Any additional transfer of stock considered gift and can go unreported if the amount is under $15,000

 

[davew9128]

Thanks for all your replies. From above, I can conclude that child support can be paid via stock transfer. Any additional transfer of stock considered gift and can go unreported if the amount is under $15,000

And how did you come to that conclusion regarding child support, since literally nobody said it was acceptable.

 

[willow26]

Please look at the last sentences of reply #2 by "Taxing Matters" above. Furthermore, during my research so far, I have not seen it mentioned anywhere as to how child support payment should be made. As far as alimony is concerned, IRS has given a clear guidance that it should only be paid by cash. Please enlighten me if I'm mistaken. I'm in California.

 

[LdiJ]

And how did you come to that conclusion regarding child support, since literally nobody said it was acceptable.

Nobody said it was unacceptable Dave. TM did say that a child support agency probably would not accept it, but that is just because they couldn't track it. The child support agency however is not involved in this particular case, so how it is paid is up to the parties.

 

[Taxing Matters]

Thanks for all your replies. From above, I can conclude that child support can be paid via stock transfer. Any additional transfer of stock considered gift and can go unreported if the amount is under $15,000

Money or the fair market value of property that you give the other parent in payment of your child support obligation is, as LdiJ mentioned, not a gift. Anything else you give her (apart from directly paying her medical expenses) is a gift for federal gift tax purposes. You need to file a gift tax return whenever the total of all gifts made during the year to any one person exceeds the exemption amount for that year. Currently that exempt amount is $15,000. So you could give a $15,000 each to 10 different persons this year and not have to file a federal gift tax return. But if any one of them gets more than $15,000 then you'd need to file a gift tax return.

 

[davew9128]

Nobody said it was unacceptable Dave. TM did say that a child support agency probably would not accept it, but that is just because they couldn't track it. The child support agency however is not involved in this particular case, so how it is paid is up to the parties.

And nobody said it WAS acceptable, nor is this the proper venue to be asking the question.

 

[davew9128]

Please look at the last sentences of reply #2 by "Taxing Matters" above.

It's not a tax law matter.

 

[Zigner]

It's not a tax law matter.

So?

 

[willow26]

It is a tax related question because of the tax implications of transferred property instead of cash.