Filing Taxes After Divorce

 

A divorce, annulment, or legal separation might complicate your return. If you’re dealing with any of these situations, it can help to take an active role in how your divorce decree is written. The more familiar you are with your agreement, the better you’ll understand how it affects your taxes. Complicated though filing taxes after divorce and other similar events can be, we’re ready to walk you through some of the biggest things to expect regarding your taxes.

First, you might be wondering what filing status to use if you just finalized your divorce. If your divorce was final before the end of the year, you can’t file a joint return for that year, and you’ll need to think about divorce tax impacts. However, you shouldn’t automatically file as a single person. Here are some exceptions:

  • You could qualify as head of household if you’re providing a home for a child, which could lower your tax liability.
  • If you divorce and remarry someone else by the end of the year, you can file a joint return with your new spouse.

Also, another impact of divorce on taxes is that it can affect some health insurance payments. This is true if you both:

  • Bought health insurance on a state or federal health insurance marketplace
  • Got an advance of the premium tax credit for the insurance

You need to inform the marketplace of changes in your family structure, like divorce, marriage, adoption, or job changes. Those changes can affect your monthly payment.

Alimony Tax

Alimony payments made under divorce or separation agreements executed after Dec. 31, 2018, aren’t deductible by the spouse that pays them or taxable to the recipient. This also applies to modifications made to agreements executed on or before Dec. 31, 2018, if the modification expressly states that the Tax Cuts and Jobs Act (TCJA) applies.

Alimony from agreements executed before Jan. 1, 2019, are deductible by the payer, and taxable income to the person who receives it. Alimony is also known as spousal maintenance or spousal support. Both the payer and the recipient should have alimony payments clearly defined in the divorce agreement. That divorce agreement will help you understand the alimony tax impacts you’ll have.

If you pay alimony tax, you don’t have to itemize to deduct it. If you receive alimony, you might need to make estimated tax payments or increase your withholding on income you earn from your job. You’ll treat alimony as earned income to see if you’re eligible to make an IRA contribution.

A payment to a spouse under a divorce or separation agreement that happens after 1984 counts as alimony. This is true of your alimony for tax purposes if it meets these requirements:

  • The payment is in cash.
  • The agreement doesn’t say that the payment isn’t alimony.
  • The spouses don’t file a joint return.
  • The spouses aren’t members of the same household at the time the payments are made. If you and your former spouse used to share a home, you can’t divide the home into two living spaces to defeat that requirement. However, there is a one-month buffer period. Also, the payments might be treated as alimony — even if the spouses live in the same household — if both of these apply:
    • The spouses aren’t legally separated under a decree of divorce or separate maintenance.
    • The payments are made under a written separation agreement or temporary support order.
  • There’s no liability to make any payment — in cash or property — after the death of either spouse.
  • The payment isn’t treated as child support.

Children

Child support isn’t deductible by the payer, and it’s not income to the recipient.

Which parent claims the child depends on the parents’ custodial or noncustodial status. The custodial parent is usually the parent the child lives with for more nights in the tax year. The other parent is the noncustodial parent. Taxes after divorce can get tricky, though, so continue reading to see the exceptions surrounding custodial and noncustodial parents.

If you’re the custodial parent, you can claim the child as a dependent. However, if the noncustodial parent has the custodial parent’s consent, they can claim the child tax credit, if applicable.

The custodial parent must complete Form 8332 to let the noncustodial parent claim the child’s tax benefits. Then, the noncustodial parent must attach one of these to the return to claim the child’s tax benefits:

  • Form 8332
  • Pages from a pre-2009 divorce decree covering the child’s dependent status for tax purposes

The custodial parent might still qualify as head of household and might be able to claim these tax benefits for that child:

  • Earned Income Credit (EIC)
  • Child and dependent care credit
  • Exclusion for childcare benefits

The noncustodial parent can never claim:

  • Head of household filing status
  • EIC
  • Child and dependent care credit
  • Exclusion for dependent care assistance benefits

This applies even if the custodial parent released the dependent exemption.

Even if the decree clearly spells out custody, it usually can’t trump the divorce tax law definition of custodial parent. If there’s any confusion, the IRS might disallow the claiming rights of one of the parents.

Head of household status

To qualify to file as head of household:

  • You must be either unmarried or considered unmarried (see below) on the last day of the year.
  • A qualifying person must have lived in your home for more than half the year. However, if the qualifying person is your parent, they don’t have to live with you.
  • You must have paid more than half the cost of keeping up your home for the year.

If a person is your qualifying child, that child is a qualifying person, even if you can’t claim the exemption for that child. However, if the child is married, the child isn’t a qualifying person unless you can claim an exemption for the child. Any other person is a qualifying person only if you can claim the exemption for that person. To learn more about the rules for a person who isn’t your qualifying child, see Publication 501.

To be considered unmarried, all of these must apply:

  • You must file a separate return.
  • Your spouse must not have lived in your home in the last six months of the tax year. Your spouse is considered to have lived in your home even if they are temporarily absent due to special circumstances.
  • You must have paid more than half the cost of keeping up your home for the year.
  • Your home must have been the main home of your child, stepchild, or eligible foster child for more than half the year.
  • You must be able to claim an exemption for the child. However, if the noncustodial parent is claiming an exemption for the child since you signed Form 8332 (see above), you still meet this last requirement.

IRAs and employer-provided retirement plans

Your qualified domestic relations order (QDRO) addresses how the divorce affects your:

  • IRAs
  • Employer-provided retirement plans

A QDRO is a decree, judgment, or court order that relates to benefits paid to your:

  • Child
  • Spouse
  • Former spouse
  • Dependent

To count as a QDRO, a document must meet specific requirements. If your plan doesn’t meet the requirements, you could face unintended tax consequences.

To learn more, see Publications 504 and 575 at www.irs.gov.

If you have any further questions about filing taxes after divorce, including alimony tax, divorce tax, and child support, talk to one of our tax experts at H&R Block.

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