Filing Taxes After Divorce: What to Expect

Divorce can have serious tax implications for both spouses, whether they recently filed petitions or just finalized their divorce agreement. From choosing the right tax filing status to determining which exemptions can be claimed for dependent children, there are a number of factors that need to be considered.

Determining the Right Filing Status

Choosing the correct filing status will depend on whether the divorce is finalized on or before December 31, which is the final day of the tax year. If the divorce was completed before this date, then the ex-spouses cannot file a joint tax return. If the divorce is finalized after the new year begins, then the IRS will recognize the couple as married, which means they can file a joint return for the previous year. Even if the spouses are eligible to file a joint return, they can still choose to file separately.

Updating Form W-4

When both spouses are employed, they each need to fill out form W-4. This form is what employers use to determine how much money should be withheld from their paychecks. Joint filers must split their W-4 withholding between both spouses, so if a couple divorces, they might need to recalculate or adjust their allowances.

Alimony & Child Support Deductions

If the divorce was finalized before January 1, 2019, then alimony payments made to another spouse are considered an “above-the-line” tax deduction. However, if the divorce was finalized after this date, you should consult with a knowledgeable tax expert or attorney to determine if you can deduct alimony payments from your adjusted gross income.

Although there are modifications to the law made after 2018 that might prevent the paying spouse from deducting alimony, alimony payments received from divorces finalized prior to January 1, 2019 qualify as income, unless the divorce agreement says otherwise.

Unlike alimony payments, child support payments made to an ex-spouse cannot be deducted. Spouses receiving child support also do not have to report it as income on their tax return.

Which Spouse Can Claim the Children as Dependents?

The spouse named custodial parent can claim a child as a dependent on their taxes. The custodial parent is the parent the child primarily lives with during the tax year. The divorce agreement usually names which party is the custodial parent.

The custodial parent can usually claim the earned income tax credit (EITC) and the child and dependent care credit. If you are filing taxes after your divorce, you might also be eligible to file as head of your household, though this will impact your income tax bracket.

Although the non-custodial parent can’t claim the EITC, the child and dependent care credit, or file as a head of household, they might still be eligible to claim some credits on their taxes. Noncustodial parents can claim a child as a dependent if the custodial parent signs Form 8332: Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent.

If the custodial parent signs this form, then the non-custodial parent is eligible to claim the Child Tax Credit and the Additional Child Tax Credit. When a custodial parent signs Form 8332, they can no longer claim the child as a dependent until it is revoked the following tax year.

If you have questions about how your divorce might affect your taxes, please call McKinley Irvin at 206-397-0399 or contact us online to set up a consultation with an experienced family law attorney.