When individuals go through a legal separation or a divorce, the change in their relationship status can also affect their tax situation. The IRS considers a couple to be married for income tax filing purposes until they get a final decree of divorce or separate maintenance. For tax filing purposes, an individual’s tax filing status is determined as of December 31.
If a federal employee becomes divorced or is legally separated during the year, then the employee will usually need to file a federal withholding certificate (Form W-4) and the equivalent state withholding certificate (if the employee is a resident of a state with an income tax) in order to claim the proper withholding for the remainder of the year. If the employee receives alimony, the employee may have to make estimated tax payments. The Tax Withholding Estimation tool can help individuals figure out if they are withholding the correct amount of federal income tax.
Amounts paid to a spouse or to a former spouse under a divorce decree, a separate maintenance decree, or a written separation agreement may be alimony or separation maintenance payments for federal income tax purposes. Certain alimony or separate maintenance payments are tax deductible by the payer spouse as an adjustment to one’s income, and fully taxable as ordinary income to the recipient former spouse.
However, as a result of the passage of the Tax Cuts and Jobs Act of 2017, individuals cannot deduct alimony or separate maintenance payments made under a divorce or separation executed before 2019 but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification. Alimony and separate maintenance payments received under such an agreement are not included in the income of the recipient spouse.
In general, the parent with custody of a child can claim that child as a dependent on his or her tax return. If parents split custody fifty-fifty and are not filing a joint tax return, then they will have to decide which parent gets to claim the child as a dependent. There are IRS “tie-breaker” rules if the parents cannot agree. Also, child support payments are not deductible by the payer and are not taxable to the recipient.
Usually, there is no recognized gain or loss on the transfer of property between spouses, or between former spouses if the transfer is because of a divorce.
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Divorcing couples who are still married as of the end of the year are treated as married for the year and must determine their filing status. The “What is My Filing Status?” tool on the IRS website here can help individuals figure out what filing status makes sense for their situations.
The following is a list of filing statuses that separating or recently divorce individuals should consider:
• Married filing jointly. On a joint return married individuals report their combined income and deduct their combined allowable expenses. For many couples, filing jointly results in a lower tax compared to filing as married filing separately
• Married filing separately. If spouses file separate tax returns, they each report only their own income, deductions and credits on their individual return. Each spouse is responsible only for the tax due on their own return
• Head of Household. Some separated individuals may be eligible to file as head of household if all of the following conditions are met:
(1) Their spouse did not live in heir home for the last six months of the year;
(2) They paid more than half the cost of keeping up their home for the year; and (3) Their home was the main residence of their dependent child for more than half the year
• Single. Once the final decree of divorce or separate maintenance is issued, an individual will file as single starting for the year the final decree of separate maintenance was issued, unless they are eligible to file as head of household or they remarry by the end of the year.
If a couple makes joint estimated tax payments and later file separate tax returns, estimated tax payments may be claimed in full by either spouse or divided between them, however they agree. If they are unable to agree, the payments are allocated between them based on their allocable shares of their combined income tax for the year.
Legal fees and court costs of getting a divorce are generally not deductible. However, if an individual is required to pay the attorney fees of the spouse in connection with a pre-2019 divorce, then these fees may be deductible if they meet the requirements of deductible alimony.
