Divorce can have a big impact on your situation. If you have recently split from your spouse, here are five things you need to know before you file your tax return. Your tax professional can tell you more.
1. Your filing status is…?
Good question! And an important one, too, because your filing status has a significant impact on the amount of tax you pay.
Your filing status depends in part on whether you are married or unmarried on the last day of the year.
If you do not receive your final divorce decree or separate maintenance decree by the end of the year, you are married. You and your spouse can file joint or separate tax returns, using a filing status of married filing jointly or married filing separately.
If you receive your final divorce decree or separate maintenance decree by the end of the year, you are unmarried for the entire year. As an unmarried person, your filing status is single or, in some cases, head of household.
Filing as head of household is generally preferable to filing as single because it offers a larger standard deduction ($6,250 larger in 2021) and more favorable tax brackets. To qualify for head of household status, you generally must be unmarried, have your dependent child living with you for more than half the year, and pay more than half the cost of keeping up your home for the year.
In some cases, you may be able to file as head of household even if you are not divorced or legally separated. To do this, you generally must meet the other requirements for head of household plus your spouse must not have lived in your home for the last six months of the tax year. Filing as head of household is generally preferable to filing as married filing separately because it offers a larger standard deduction, more favorable tax brackets, and may allow you to claim certain tax credits not allowed with the filing status of married filing separately.
2. Should you update your W-4?
After a divorce or legal separation, you will usually need to give your employer a new Form W-4 to help ensure that the correct amount of income tax is withheld from your paycheck in light of your new situation.
A new W-4 is required in certain situations, such as if your filing status changes from married filing jointly to single, married filing separately, or head of household. And in some cases, the new W-4 must be given to the employer within 10 days after the divorce or separation. For a complete list of changes that require a new W-4, please see IRS Publication 505.
3. How is alimony treated taxwise?
How alimony is treated for federal purposes depends on when the divorce or separation agreement was executed. If it was executed after 2018, alimony is not tax deductible by the person making the payments and it is not taxable to the person receiving the payments. If the agreement was executed before the end of 2018, alimony is tax deductible by the payer and it is treated as taxable income by the recipient, unless the agreement has been modified to us the other tax treatment.
4. How is child support treated for federal tax purposes?
Child support is not deductible by the payer and is not taxable to the recipient.
5. If your name changes during or after a divorce, who do you report it to?
If you legally change your name, be sure to notify the Social Security Administration (SSA) of the change so that their records match the name you will be using on your tax return. If the names don’t match, there may be delays in processing your return. You can notify the SSA by filing Form SS-5 with them.
The tax rules regarding divorce are complex, and we’ve only scratched the surface of some of them here. If you are divorced or separated and have questions or need advice regarding your tax situation, please consult your tax professional.
Article published in January/February 2022 edition of Eye on Money. If you would like to be added to our mail list please email [email protected].