Divorce and Taxes: What You Need to Know
Taxes after divorce: Presently, this may feel like yet another unwelcomed stressor in your life. But armed with all the right information, you can navigate this new tax situation with greater ease. The family law professionals at Conniff & Keleher, LLC in Chicago and Oak Park are here to help with any stage of your divorce, and we have some tips for navigating the world of post-divorce taxes.
Know Your New Filing Status
The tax return form you use will depend on your marital status at the end of the year. The cutoff is at midnight on December 31 of the tax year in which you are filing. That means, for example, if you are divorced in 2020, you and your ex will be filing your 2020 taxes separately. If you have the minor children for a majority of the time, you may have the advantage of filing as Head of Household. If not, you will file under the status of a single taxpayer. You must check with your tax prepare to confirm your filing status.
Will Child Support and Alimony Affect Your Taxes?
Child support payments are not tax deductible for the person making them and do not need to be claimed as income by the person receiving them.
The answer for maintenance (spousal support) payments will depend on when your divorce was finalized:
- – If your divorce was finalized after December 31, 2018, maintenance (spousal support) payments are not tax deductible for the person making them, and do not need to be claimed by the person receiving them.
- – If your divorce was finalized before December 31, 2018, maintenance (spousal support) payments are deductible for the person making them, and must be claimed by the person receiving them, if and only if, your divorce documents include terms for tax deductible maintenance or spousal support.
What if your divorce agreement combines alimony and child support as one single “family support” payment? This would be treated like alimony and is, therefore, deductible to the payer and should be claimed by the recipient. However, we recommend consulting with a tax professional in complicated financial situations.
Be Aware of the Rules That Apply to Support
Maintenance (spousal support) payments that are “front-loaded” or concentrated within the first year or two following divorce may be labeled as a non-deductible property settlement by the IRS. Are you making or receiving maintenance payments that are scheduled to end within six months of your child’s 18th or 21st birthday? Know that the IRS may actually consider this to be child support disguised as maintenance. This is one of the many reasons it is recommended that you consult a tax professional when filing taxes after divorce.
Which Parent Will Claim the Children as Dependents?
Sometimes, your divorce agreement will state which parent is to claim the children as dependents. If not, the parent who has court-ordered physical custody of the children will claim them. Regarding joint custody, the parent who has the children for the most days during the tax year will claim them as dependents.
Claiming Head of Household With a Child
If your marital status by the last day of the year is “single,” claiming Head of Household would allow you to take a higher standard deduction. Note that you will need to have a qualifying dependent whose support you pay more than half of in order to claim Head of Household. You must consult your tax advisor for further qualifying elements.
Protect Yourself By Filing Your Taxes Early
If things are going awry and your former spouse is threatening to claim the children even though you are the one who is entitled to do so, you should protect yourself by filing early in the year. If your ex does attempt to claim the children, the IRS would see that you have already filed and claimed them, and would require your ex to prove that they were entitled to claim them.
Don’t Overlook the Child and Dependent Care Credit
If, as a parent with court-ordered custody of children under the age of 13, you incur work-related child care for them, you may reserve the right to claim a tax credit of up to $1,050 for one child, or $2,100 for two or more children.
Change Your Withholding On Form W-4 If Necessary
If you are employed, it is often advantageous to review your withholding following major life changes. Your taxes after divorce, for example, may come with different withholding allowances from when you were married.
Consult With a Professional for Peace of Mind
Divorce and taxes can quickly become confusing and complicated, especially during the first year following your divorce. As such, it is strongly recommended that you consult with a tax professional who can help ensure you’re filing correctly and maximizing your refund.