When your marriage ends, your tax situation changes. Filing taxes after divorce is complicated because while divorce ends your legal marriage, your ex-spouse is still obligated to pay your fair share of federal income tax. Your filing status determines your filing requirements, standard deduction, eligibility for certain credits and tax.
If your divorce is finalized by midnight on Dec. 31 of the tax-filing year, the Internal Revenue Service (IRS) will consider you unmarried for the entire year, making it impossible for you to file a joint return.
Here are some other things to note:
If you’re separated but not legally separated or divorced at the end of the year:
The IRS considers you married for filing purposes until you get a final decree of divorce or separate maintenance.
If you’re legally separated or divorced at the end of the year:
You must file as single for that tax year unless you’re eligible to file as head of household or remarry by the year’s end.
If you’re legally married at the end of the year:
You must file as married for that tax year and choose one of these filing statuses.
Married filing jointly: On a joint return, you report your combined income and deduct your combined allowable expenses. For many couples, filing jointly lowers their taxes.
In some cases, you may be relieved from liability for taxes owed on a joint return through tax relief for spouses.
Married filing separately: If you file separate tax returns, you report only your own income, deductions and credits on your individual return. The rules are different if you live in a community property state. You and your spouse should consider whether filing separately or jointly is better for you.
Head of household: If you’re married or legally separated, one of you may be eligible to file as head of household if all of these apply:
Your spouse didn’t live in your home for the last six months of the year
You paid more than half the cost of keeping up your home for the year
Your home was the main home of your dependent child for more than half the year
Your marriage is annulled
You must file amended returns for all tax years affected by the annulment that aren’t closed by the statute of limitations. This is generally three years from the date you file your original return or two years after the date you pay the tax, whichever is later.
On the amended return, you must file as single or, if you meet certain requirements, head of household.
Name change
File your tax return using your name on record with the Social Security Administration (SSA). Notify SSA if you changed your name.
Tax withholding
If you legally divorce or separate, you usually need to adjust the amount of tax withheld from your paycheck.
Figure out your tax withholding, then use your estimate to complete and give your employer a new Form W-4.
If you receive alimony income, you may also have to adjust your withholding or make estimated tax payments.
Alimony and separate maintenance payments
Payments made to a spouse under a divorce or separation agreement may be considered alimony or separate maintenance.
If your agreement was signed in 2019 or later, payments aren’t deductible by the spouse who pays them and aren’t included in the receiving spouse’s income.
If your agreement was signed in 2018 or before, payments are deductible by the paying spouse and included in the receiving spouse’s income. The only exception is if your divorce or separation agreement specifically changes the tax treatment of your payments.
Claiming dependents
Generally, the parent with custody of a child can claim that child on their tax return to file as head of household or claim credits.
If parents split custody 50%-50% and aren’t filing a joint return, they must decide which parent gets to claim the child. If the parents can’t agree, there are tie-breaker rules. Special rules apply for the noncustodial parent to claim a child on their tax return.
Child support payments aren’t deductible by the payer and aren’t taxable to the payee.
Note that the IRS might audit your return and ask for information to verify your claimed dependents and credits.
Property transfers
If the transfer is because of a divorce, there’s usually no recognized gain or loss on the transfer of property between spouses or former spouses. You may have to report the transaction on a gift tax return. Find more on property transfers and divorce.
Retirement plans and IRAs
If you participate in a retirement plan and get divorced, your ex-spouse may become entitled to a portion of your account balance under a qualified domestic relations order (QDRO).
If you receive payments under a QDRO, you must include them in your income unless you roll them over into a traditional IRA and meet certain conditions. Amounts included in income are not subject to the 10% early distribution tax.
To change the beneficiary of any survivor benefits not covered under a court order, contact your retirement plan administrator.
Rules for IRAs
If you are divorced or legally separated at the end of the tax year, you can’t deduct contributions you make to your former spouse’s traditional IRA.
When figuring contribution and deduction limits for an IRA, taxable alimony or separate maintenance payments count as compensation.
You can transfer assets from your IRA into your spouse’s IRA tax-free under a divorce or separate maintenance decree through a qualified trustee-to-trustee transfer or transfer incident to divorce. Once the transfer is complete, your ex-spouse is responsible for any taxes due on the money they withdraw.
If you withdraw amounts from your traditional IRA to pay your ex-spouse as part of your divorce settlement, those amounts are taxable to you. If you’re under age 59 and a half, unless you qualify for an exception, you must also pay the 10% early distribution tax.
Source: Internal Revenue Service: www.irs.gov