If you’re involved in a divorce, you may be worried about child custody, alimony, and property division. However, you must also consider tax implications when the divorce is final. Although the tax season for 2019 is over, the following is an overview of several important factors when it comes to filing taxes after divorce for years to come.
Your New Filing Status
Your filing status depends on the date you finalize your divorce.
For example, if your marriage officially ends on or before December 31—the last day of the tax year—you cannot file jointly with your ex-spouse.
By contrast, if your divorce is finalized after the new year begins, you can still file a joint tax return. However, if you don’t want to file a joint return—despite being eligible—you can file as “married filing separately.”
If you cannot file jointly, filing as head of the household could still result in saving some money because this status offers a greater standard deduction. The larger tax brackets mean paying a lower tax rate compared to filing as single. Keep in mind, only one party can file as head of household.
You can file as head of the household if all three elements exist:
- You were divorced or legally separated on the last day of the year
- You paid over half of the household costs for the year (e.g. real estate taxes, utilities, home insurance, food, etc.)
- A qualifying dependent, such as a child lived, with you for over six months of the year
Only one parent can claim children as dependents when filing taxes after divorce.
In most cases, the custodial parent gets this deduction since he/she is the parent whom the child lives with for most of the tax year. Claiming a child as a dependent also means claiming the child and dependent care credit and earned income tax credit (EITC).
Noncustodial parents cannot claim the child and dependent care credit and EITC. Additionally, they cannot file as a head of household.
However, if the custodial parent signs Form 8332 (Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent), then the noncustodial parent can claim a child as a dependent. If this is apparent, the noncustodial parent can claim the Child Tax Credit and other forms of credit.
Each employed spouse must complete a W-4, which tells your employer how much tax to withhold from your paycheck. Since joint filers evenly divide their W-4 withholdings, a divorce could mean adjusting or recalculating your allowances.