When people go through a legal separation or divorce, the change in their relationship status also affects their tax situation. The IRS considers a couple married for filing purposes until they get a final decree of divorce or separate maintenance.

Update withholding

When someone becomes divorced or separated, he or she usually must file a new Form W-4 with the employer to claim the proper withholding. If he or she receives alimony, he or she may have to make estimated tax payments. The Tax Withholding Estimator tool on IRS.gov can help people figure out if they are withholding the correct amount.

Understand the tax treatment of alimony and separate maintenance

Amounts paid to a spouse or a former spouse under a divorce decree, a separate maintenance decree, or a written separation agreement may be alimony or separate maintenance payments for federal tax purposes. Certain alimony or separate maintenance payments are deductible by the payer spouse, and the recipient spouse must include it in income.

However, individuals cannot deduct alimony or separate maintenance payments made under a divorce or separation agreement executed after 2018 or executed before 2019 but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification. Alimony and separate maintenance payments received under such an agreement are not included in the income of the recipient spouse.

Determine who will claim a dependent child if filing separate returns

Generally, the parent with custody of a child can claim that child on his or her tax return. If parents split custody fifty-fifty and are not filing a joint return, they must decide which parent gets to claim the child. There are tie-breaker rules if the parents cannot agree. Child support payments are not deductible by the payer and are not taxable to the payee.

Report property transfers, if needed

Usually, there is no recognized gain or loss on the transfer of property between spouses, or between former spouses if the transfer is because of a divorce. People may have to report the transaction on a gift tax return.

Consider filing status

Divorcing couples who are still married as of the end of the year are treated as married for the year and must determine their filing status. The What Is My Filing Status tool on IRS.gov can help people figure out what status makes sense for their situation.

Separating or recently divorced people should consider the following statuses:

  • Married filing jointly. On a joint return, married people report their combined income and deduct their combined allowable expenses. For many couples, filing jointly results in a lower tax than filing separately.
  • Married filing separately. If spouses file separate tax returns, they each report only their own income, deductions, and credits on their individual return. Each spouse is responsible only for the tax due on their own return. People should consider whether filing separately or jointly is better for them.
  • Head of household. Some separated people may be eligible to file as head of household if all of these apply.
    • Their spouse did not live in their home for the last six months of the year.
    • They paid more than half the cost of keeping up their home for the year.
    • Their home was the main home of their dependent child for more than half the year.
  • Single. After the final decree of divorce or separate maintenance is issued, a taxpayer will file as single starting for the year it was issued, unless they are eligible to file as head of household or they remarry by the end of the year.

For more information, contact Wayne M. Pecht, Esquire at 717-761-4540 or [email protected]