Divorced or Separated and Income Taxes
A divorce or separation is a life event that has many tax implications on your next tax return. Understanding these changes can help you manage your finances better and avoid surprises. This page will walk you through how divorce or separation affects your income taxes and what steps you need to take to stay on track.
How Does a Divorce Affect My Taxes?
If a divorce agreement was finalized before January 1, 2019, there is no change in the federal income tax treatment of divorce-related payments. Alimony payments still qualify as deductible expenses for the alimony payer if the time-honored list of specific tax-law requirements apply. Thus, alimony payments can be written off on the payer’s 1040 IRS Income tax return - you do not need to itemize deductions to claim this. The recipient of the alimony payments must list these payments as taxable income on their return.
Key Takeaways
- For divorces finalized before January 1, 2019, alimony payments are deductible for the payer and must be reported as income by the recipient.
- Divorces finalized after December 31, 2018 no longer allow alimony deductions for the payer, and the recipient does not need to report these payments as income.
- If you are separated but not legally divorced by December 31, you must file as married, either jointly or separately. If your divorce is finalized, then you are considered unmarried for the full year.
- A divorced or legally separated parent can only claim dependents according to the divorce decree or based on which parent had the child for more than half the year.
- Child support payments are non-deductible for the payer and non-taxable for the recipient, regardless of the agreement's date.
For payments required under divorce or separation instruments that are executed after December 31, 2018, the recent tax law eliminates the deduction for alimony payments. Recipients of affected alimony payments from agreements finalized after Dec. 31, 2018 do not have to include them as taxable income on their taxes each year.
Instead of worrying about these timeframes, simply file with eFile.com and the tax app will report your information on the proper forms with the correct deductions and taxable incomes.
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Frequently Asked Questions
Is alimony taxable?
Whether alimony is taxable depends on when your divorce or separation agreement was finalized. For detailed guidance, refer to the alimony payments and taxes page.
Is child support taxable?
Child support is not taxable for the recipient and cannot be deducted by the payer. Unpaid child support may lead to federal tax refunds being garnished by the IRS.
Who claims a child as a dependent after divorce?
What filing status should I use after a divorce?
If you're divorced by year-end, you can no longer file jointly. You may qualify as head of household if you have a dependent living with you and paid over half the household expenses. Use the STATucator Tool to determine your filing status.
What tax considerations should I keep in mind during a divorce?
- Medical Bills: You can include your child's medical expenses in your deductions, even if your ex has custody.
- Tax Credits: Certain credits, like the Child Tax Credit, can only be claimed by the parent who claims the child as a dependent.
- Asset Transfers: Transfers during divorce are generally not taxable, but future sales may incur capital gains tax.
- Retirement Assets: Use a qualified domestic relations order (QDRO) to avoid taxes on 401(k) transfers.
- Home Sale: You may qualify for capital gains tax exclusions if you sell your home post-divorce.
- Name Changes: Notify the SSA of any name changes to avoid tax filing issues.
What are examples of taxable alimony and child support?
- Example 1: In Jan and Bob's divorce settlement from July 31, 2018, Bob pays $150 monthly as alimony and $200 as child support. If he pays $4,200, he can deduct $1,800 as alimony, reporting it on his tax return. If he only pays $3,600, he deducts $1,200 as alimony, as $2,400 is child support.
- Example 2: According to Sue and George's legal separation agreement from December 31, 2017, if Sue pays George's medical expenses, she can deduct those payments as alimony if the agreement allows it. George must report this alimony on his tax return.
- Example 3: Bill and Marge's 1984 legal separation settlement still applies, even after their 1985 divorce decree, allowing Bill to deduct alimony payments as they follow pre-1985 rules.
- Example 4: Mary must pay Michael $8,000 in alimony and $4,000 in child support as per their February 2, 2024 divorce statement. Neither can claim these payments on their tax returns.
What Is Affected by Divorce?
Whether you're separated or divorced affects your taxes in several ways, including:
- Filing status: If you are separated but have not obtained a final decree of divorce or legal separation by December 31 of a tax year, you can only file as married filing jointly or married filing separately since you are considered married for the entire year. If you are divorced or legally separated by December 31, you are considered not married for the entire year and you can file as single or head of household if you have a qualifying dependent.
- Dependents: When you're separated but not legally separated or divorced, you and your spouse can claim your dependent(s) on one joint tax return or file separate returns with the married filing separately status and have one child claimed per return. If you are divorced and have a divorce decree naming a custodial parent, only the custodial parent can claim a child.
- Health Insurance Coverage: During separation, your health insurance coverage usually does not change. However, if you lose coverage through a divorce, it is considered a life event that allows you to enroll in health coverage through the Marketplace during a Special Enrollment period. You can report on your tax return that you had Marketplace insurance throughout the year as a result.
- If you and your former spouse are enrolled in the same Marketplace health insurance policy, you need to calculate your Premium Tax Credit amounts on separate tax returns and reconcile any advance payments that were made on your behalf. When you utilize the eFile.com app, we will generate the proper healthcare based on the information you provide during the tax interview.
- IRA Retirement Account Contributions: If you are not legally separated or divorced by December 31 of a tax year, you will be able to deduct any contributions you make to your ex-spouse's traditional IRA. Otherwise, you can only deduct contributions to your own traditional IRA.
A divorce or separation can impose many personal and financial changes. Use tax software to help file your taxes so you don’t need to worry about all the details. Just answer a few simple yes or no questions, and we’ll take care of the rest. You can trust that we’ll prepare your income tax return with your best interests in mind.
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Additional Related Tax Information on Divorce, Separation, and Marriage
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