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Tax Considerations in a Divorce

As with every other part of your life, separation and divorce will impact your taxes. This is an area in which you should try your hardest to keep the lines of communication open and the emotions out. Do not assume that you will able to claim all deductions and exemptions. That will only lead to fines, penalties, and audits if you are wrong. Make sure that you have all tax related issues settled and clearly stated in your separation agreement and/or divorce decree.

The information contained on this page is for informational purposes only. Before acting upon or making any decisions based upon the information contained within this page, consult a tax professional experienced in matrimonial issues.

FILING STATUS

How are you going to file your taxes? If you are still in the divorce process do not look at a joint return as any kind of "attachment" to your spouse. This is strictly a financial decision. You qualify for the Married Filing Jointly status if you are not yet divorced. You do not qualify for this status in the tax year you were divorced.

EXEMPTIONS

For non custodial parents to claim a child as an exemption:

  • If your decree is dated Dec 31, 2008 or before and it gives you the exemption without any preconditions, for example, being current on child support, then you can claim the child. You must file a paper return by mail and you must attach copies of the applicable pages from your decree along with the top page, showing the other parent's name and social security number as well as the signature page with the other parent's signature and date. These copies must be filed with your tax return every year you are taking the exemption.
  • If your decree is dated Jan 1, 2009 or later the IRS will not honor the decree alone. You would need a signed Form 8332 from your ex to claim the exemption.

The decree can order the custodial parent to provide Form 8332 under penalty of Contempt of Court. However if they fail provide the form you have to go back to court to enforce it. If the decree doesn't order the custodial parent to complete Form 8332 and they refuse to sign it then the non-custodial parent cannot claim the child.

Absent a pre 2009 decree or Form 8332, the exemption automatically goes to the custodial parent. The Tax Code defines the custodial parent as the one that the child spent the most time with during the year. Add up the overnights if need be; the most nights wins. (Time spent away from home for school counts as time spent in the home of the parent with the most nights physically in the home.)

DEDUCTIONS

Under certain circumstances, the amount of your legal and accounting fees paid which can be attributed to maintaining or preserving income (not child support) may be tax deductible. Discuss with your accountant if your legal and/or accounting fees qualify as a deduction.

ALIMONY

If you either pay or receive alimony also called spousal support there are tax ramifications. For divorce decrees and separation agreements entered into prior to January 1, 2019 spousal support is taxable to the recipient and deductible for the payer. Occasionally a dispute will arise as to how much alimony was paid or received. Sometime the IRS will question the alimony amounts. For that reason it is very important to keep good records. If you fail to maintain adequate records you may lose the alimony tax deduction.

For alimony payments required under divorce or separation instruments that are executed after Dec. 31, 2018, the new law eliminates the deduction for alimony payments. Recipients of affected alimony payments will no longer have to include them in taxable income.

You should be aware of the Recapture rule for alimony. It can get complicated so consult a tax professional if you think you are impacted as either a payor or a recipient of alimony.

CHILD SUPPORT

Child support is never taxable nor is it deductible.

CHILD TAX CREDIT

If you have children who are under age 17 as of the end of the tax year, you may be eligible to receive a $1,000 tax credit per child on your tax return. A tax credit reduces your tax bill dollar for dollar, so for example, three qualifying children can reduce your tax liability by $3,000. The credit does not affect the exemptions you take for dependents. The credit is in addition to your exemptions. The credit is limited if your modified adjusted gross income is above a certain amount.

To qualify for the Child Tax Credit you must meet these tests:

  • The dependent must be a U.S. citizen or resident. You can claim your child, stepchild, adopted child, grandchild or great-grandchild. Under a new definition of a "qualified child," you can also claim the credit for siblings, step-siblings and half-siblings that live with you. Foster children qualify if they were placed with you by a court or authorized agency. To claim the credit, children must live with you more than half the year and must not provide more than half of their own support.
  • You must report each qualifying child's tax identification number (TIN) (usually the child's Social Security number) on your return.

For more information, see IRS Publication 972, available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). You can also use the Interactive Tax Assistant on the IRS website to determine if you're eligible for the Child Tax Credit. The ITA is a tax law resource that takes you through a series of questions and provides you with responses to tax law questions

CHILD AND DEPENDENT CARE CREDIT

If you paid someone to care for your dependent under age 13 or your disabled dependent or spouse so that you could work or look for work, you may be able to claim the Child and Dependent Care Credit on your tax return.

The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return

To qualify for the Child and Dependent Care Credit you must:

  • Have paid for care expenses in order to earn taxable income. If you are married both spouses must work either full or part time. Spouses who are full time students or incapacitated are excepted;
  • Pay more than 50% of the household maintenance costs for a qualifying dependent;
  • File your tax return jointly if married, unless the separation rules apply;
  • Hire someone other than your child (under age 19 at the end of the tax year), your spouse, or a person you can claim as a dependent;
  • Have qualifying expenses over and above any tax free reimbursements from your employer;
  • Report on your tax return the name, address, and taxpayer identification number of the child care provider. If the care provider is a tax exempt organization the taxpayer identification number is not required.

Employment-related expenses that qualify for the Child and Dependent Care Credit include household services and expenses for care of the qualifying individual. Expenses of attending a daytime summer camp qualify for the Child and Dependent Care Credit if that is a reasonable means of providing care during working hours. However, overnight camp expenses do not qualify for the Child and Dependent Care Credit. A nursery school generally qualifies for the Child and Dependent Care Credit, though an elementary school does not qualify for the Child and Dependent Care Credit.

Child and Dependent Care Credits are allowed for $3,000 of expenses for one dependent's care and $6,000 for more than one dependent's care.

In order to claim the Child and Dependent Care Credit you must maintain as your principal home a household for at least one of the following qualifying persons who live with you:

  • A child under 13 years of age whom you claim as a dependent;
  • Your spouse if your spouse is physically or mentally incapable of caring for himself or herself;
  • A person who is physically or mentally incapable of caring for himself or herself regardless of age

About the Caregiver:

  • You must identify all persons or organizations that provide care for your child or dependent.
  • You must report the name, address, and Tax Identification Number (either the social security number or the employer identification number) of the care provider on your return. If the care provider is a tax-exempt organization, you need only report the name and address of the organization on your return.
  • If you can't provide information regarding the care provider, you may still be eligible for the credit if you can show that you exercised due diligence in attempting to provide the required information.

For more detailed information on the Child and Dependent Care Credit, see Publication 503, Child and Dependent Care Expenses. You may download these free publications from http://www.irs.gov or order them by calling 800-TAX-FORM (800-829-3676).

EARNED INCOME CREDIT

The earned income credit (EIC) is a tax credit for some people who work and have earned income under a certain amount. A tax credit usually means more money in your pocket. It reduces the amount of tax you owe. The EIC may also give you a refund.

To qualify for Earned Income Tax Credit or EITC, you must have earned income from employment, self-employment or another source and meet all of the following rules:

  • Have a valid Social Security Number
  • Have earned income from employment, self-employment or another source
  • Cannot use the married, filing separate filing status
  • Must be a U.S. citizen or resident alien all year or a nonresident alien married to a U.S. citizen or resident alien and choose to file a joint return and be treated as a resident alien
  • Cannot be the qualifying child of another person*
  • Cannot file Form 2555 or 2555-EZ (related to foreign earned income)
  • Your Adjusted Gross Income and earned income must meet the limits shown on the Income Limits, Maximum Credit Amounts and Tax Law Updates Page
  • Your investment income must meet or be less than the amount listed on the Income Limits, Maximum Credit Amounts and Tax Law Updates Page.

If you are married and file a joint return with your spouse, your spouse must also meet the EITC rules for everyone.

Rules for Workers without a Qualifying Child
  • You (and your spouse, if filing a joint return) must have lived in the United States for more than half the tax year
  • Either you or your spouse, if filing a joint return, must be at least age 25 but under age 65
  • You (or you spouse, if filing a joint return) cannot qualify as a dependent of another person.

You may be eligible for the earned income credit (EIC) for the tax year 2018 if:

  • $49,194 ($54,884 married filing jointly) with three or more qualifying children
  • $45,802 ($51,492 married filing jointly) with two qualifying children
  • $40,32 ($46,010 married filing jointly) with one qualifying child
  • $15,270 ($20,950 married filing jointly) with no qualifying children

Tax Year 2018 maximum credit:

  • $6,431 with three or more qualifying children
  • $5,716 with two qualifying children
  • $3,461 with one qualifying child
  • $519 with no qualifying children

Investment income must be $3,500 or less for the year.

For more information on whether a child qualifies you for the EITC, see IRS Publication 596

INCOME TAX EVASION BY SPOUSE

If your spouse knowingly cheated on your joint return to evade taxes, you might not be held responsible. There is a tax rule in effect whereby if you are divorced, legally separated or have been living apart from your spouse for at least 12 months, and you were unaware that your spouse lied on your joint tax return you can file papers that would compute your tax liability separately. If you have been audited and you believe this rule applies to you contact a tax specialist who has experience with this type of matter.

For detailed information see IRS Publication 971 Innocent Spouse Relief

Additional Divorce Tax Consideration Resources:

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