Filing Your First Tax Return after Divorce

The first year after a divorce can be particularly difficult as ex-spouses learn how to navigate life as divorceés. While filing for taxes may not be top-of-mind after divorce, it’s important to understand how this life change will affect your taxes, and more importantly your tax refund.

Filing taxes after divorce is complicated. Here are some considerations handling your taxes post-divorce in 2020.

What Filing Status Should You Use?

The filing status you can use on your 2019 taxes depends on when the divorce is completed. If your divorce was completed on or before December 31, 2019, you are unable to file a joint tax return. If the divorce doesn’t become official until January 1, 2020 or later, you can still file a joint return for 2019. However, you can still opt to file as “married filing separately.”

If you can’t file a joint return for 2019, you could still possibly save money by filing as the head of the household. This status offers a larger standard deduction and could mean a lower tax rate than if you file as single.

To use the head of household filing status, you must meet the following three requirements:

1. On the last day of 2019, you were considered unmarried– meaning single, divorced, or legally separated.
2. You paid more than half of the costs of home upkeep for the year 2019, including real estate taxes, home insurance, utilities, repairs, and even food consumed in the home.
3. A dependent lived with you for more than six months of the year.

Changes to Your W-4

If employed, your employer has a W-4 on file that tells them how much to withhold from your paycheck. Filing jointly means the withholdings on the W-4 need to be split between spouses. If filing separately for the first year after filing jointly, you may need to make changes to the withholdings on your W-4.

What About Alimony Deductions?

Until January 1, 2019, the payer of maintenance (alimony) could deduct all maintenance

payments made to their former spouse from their gross income. In turn, the former spouse

receiving maintenance had to pay income tax on the monies they received. This usually resulted in less money being paid in taxes to the government because the person receiving maintenance received said payments because they did not make enough money to support themselves. Consequently, they typically were in lower income tax brackets than the paying spouse. The payor typically had more than enough money to support themselves allowing them enough “extra” money per month to help support their former spouse. And these payors of maintenance were in higher tax brackets than the payees.

This all changed on January 1, 2019. If you got divorced on or after January 1, 2019, the tax burden shifted from the payee to the payor, meaning that the person paying maintenance had to pay the taxes on the maintenance money at their higher tax bracket before paying their former spouse who was in need of financial assistance.

Which Spouse Can Claim Children as Dependents?

Having children and being divorced affects your filing status and your ability to claim tax credits. Knowing who can claim the children as dependents on taxes is critical.

Only custodial parents are eligible to claim children as dependents. A custodial parent is defined as the parent with whom the child lives for more nights during the tax year. Divorce proceedings typically name one of the spouses as the custodial parent. This parent may be eligible to claim earned income tax credit and the child and dependent care credit. Additionally, a custodial parent may also be able to file with the head of household status.

Child support is taxed in the same manner. The payor of child support has to pay the taxes on the child support and the recipient does not owe taxes on the child support they receive.

Conclusion

It’s important to understand how your taxes will change with divorce. Review your filing status, update your W-4 to make sure you’re claiming the right amount of allowances, and understand how alimony and child support are taxed.

To have specific tax questions answered about your divorce, contact Marta Papa for a referral to a tax professional.