When is child support not subject to income tax?

Child support is not subject to income tax when it is directly paid to the child because child support is considered a financial obligation meant to provide for the child's needs rather than income for the recipient. The IRS regards child support as neither taxable income for the recipient nor a deductible expense for the payer. This tax treatment aligns with the underlying purpose of child support, which is to support the child, rather than to provide income to the custodial parent.

In cases where child support is mistakenly classified or treated differently, such as if it were to be deducted by the payer, it would incorrectly suggest that the payment is akin to a business expense or similar financial obligation that could warrant tax benefits, which is not the case under IRS guidelines. The recipient's financial situation, including other income sources, does not affect the tax consideration of child support payments, which remain non-taxable regardless of the recipient’s total income. Therefore, the stipulation of the payments being identified as child support in an agreement is simply a matter of ensuring clarity in the terms of the payment but does not independently influence tax liability.