A lot of things change as a result of a divorce, including your tax situation. You’ll need to make certain updates so the IRS can understand your new circumstances.
Will you be dealing with alimony payments? Read on for tax tips and steps to take once your divorce is finalized.
Update your personal information with the IRS
The IRS needs to be informed when your legal name and address have changed. Use the following documents to update your personal information with the IRS.
- Address changes – If you moved addresses due to divorce, use Form 8822, Change of Address, to inform the IRS.
- Name changes – To change your legal name for tax purposes, inform the Social Security Administration using Form SS-5, Application for a Social Security card.
Submitting a return with an incorrect name or address may result in processing delays or rejection once the IRS receives your return. Read our tax prep checklist for all the information and records to have on hand when it’s time to file your taxes.
Adjust your tax withholding after divorce
After your divorce, you need to make sure you have the correct amount of income tax withheld from your paycheck for your new circumstances. For example, you should no longer be receiving an allowance for being married. Your total household income will also change, impacting how much you owe.
Fortunately, updating your W-4 is easy. You’ll simply complete a new Form W-4 and submit it to your employer to account for your new marital status.
When to update your filing status after divorce
Your eligibility to update your filing status depends on when your divorce is finalized. According to the IRS, your marital status on December 31st informs your filing status for the entire tax year. For example, if your divorce was finalized on October 10th, you can change your filing status for that tax year, which will be reflected on the return you file the following year.
If you split up with your significant other, but the two of you have not legally divorced before the end of the year, you may opt to use the married filing separately filing status. Keep in mind that choosing this filing status means you cannot claim the Earned Income Tax Credit.
If you and your spouse have lived separately for more than six months and you pay more than half of your household expenses, you could qualify for head of household status. Otherwise, you will need to choose to file separately or jointly.
How to qualify for head of household status after divorce
If you have dependents, the head of household filing status may be more advantageous for your tax situation if you’re eligible. The head of household filing status has a higher standard deduction and higher income thresholds per tax bracket compared to filing as single. You can claim head of household if you have at least one qualifying dependent, contribute more than half of your household expenses, and finalize your divorce before December 31.
Is alimony tax deductible?
If your divorce was settled before December 31, 2018, and you pay alimony, you can deduct those payments on your return. On the other hand, if you receive alimony from a divorce settled prior to that date, it’s considered taxable income.
If your divorce is settled after January 1, 2019, you cannot deduct the alimony you paid to your former spouse. If you are the one receiving alimony, you don’t need to report it as taxable income.
Claiming dependents after divorce
When two parents divorce, only one person can claim their children as dependents on their tax return. Generally, the custodial parent – the person the children live with for most of the year – gets to claim them.
In cases of shared custody, the parent with the highest adjusted gross income (AGI) can claim the children as dependents. However, the other partner can claim the children as dependents if both parties agree.
Divorce tax deductions and exemptions
Divorce expenses, such as legal fees and court costs, incurred to obtain a divorce can’t be deducted on your tax return, unless specific terms in your divorce decree state that they can be. The only exception to this rule is alimony – fees associated with obtaining an alimony agreement are tax deductible.
When it comes to dependents, there are specific adjustments you can make on your return to reduce your tax liability. Consider these common tax breaks for your family:
- Deduction for medical and dental expenses – If you pay for your children’s medical bills after your divorce, you can deduct qualified expenses that exceed 7.5% of your AGI. You can qualify for this deduction even if your ex-spouse has full custody of your children.
- Child Tax Credit – This tax credit is worth up to $2,000 for each qualifying child listed on your return. The parent with primary custody can claim this tax credit unless the two parties agree otherwise.
- Child and Dependent Care Credit – This credit is worth up to 35% of qualified childcare expenses if you meet the requirements. It’s important to note that only one parent can claim this tax credit after divorce. So, if you’re actively in divorce litigation, you cannot claim this tax credit if you file taxes separately from your former spouse.
Tax implications of transferring assets
Transfers of tangible and non-tangible property are not recognized as losses or gains by the IRS. However, if your former spouse is a nonresident alien, you’re required to report the transfer of property on your return. Additionally, you must report transfers of trusts and stock buybacks made during your divorce.
If you transfer property to a third party on behalf of your former spouse, this is treated as two separate transfers. You don’t have to claim a loss or claim on the first transfer, but the recipient may have to report a gain or loss on the second transfer. For this treatment to apply, the transfer from you to the third party must be one of the following.
- Required by your divorce decree
- Requested in writing by your former spouse
- Consented to in writing by your spouse or former spouse
Transferring interest or funds from an HSA or 401(k) account isn’t considered a taxable transfer. Specific rules apply for IRA transfers. For example, if you transfer funds from an IRA to your former spouse and they decide to take a distribution, they have 60 days to roll the funds over into their own IRA to avoid penalties.
Filing taxes as divorced with TaxSlayer
TaxSlayer will ask you all the important questions about your situation so you can complete your tax return with 100% accuracy guaranteed and get your maximum refund. Our software helps you navigate all of life’s changes so you can focus on what matters most to you.
Filing taxes after divorce FAQs
We’ve answered a few common questions about divorce and what it means for your taxes.
Will the IRS know if I got divorced?
The IRS will know if you get divorced when you change your filing status, so you do not need to take extra steps to notify the IRS. As always, choosing the right filing status is critical for an accurate tax return.
What happens to tax refunds during a divorce?
If you are required to file a tax return before your divorce is finalized, a tax refund is considered marital property if you typically file jointly. This means you will most likely have to split the refund with your former spouse unless otherwise stated in your divorce agreement. Filing separately entitles you to your full refund since no one else is listed on the return.
How should divorced parents file taxes?
How you should file taxes depends on your individual circumstances. Child custody informs a lot of decisions for divorced parents. The most important tax changes to note after a divorce is finalized are updating your filing status accordingly and having a clear agreement on claiming dependents.
How do you file taxes if you were divorced in the middle of the year?
If your divorce is finalized in the middle of the year, you can change your filing status for the current tax year. For example, if your divorce was finalized in April of 2024, you can choose a new filing status when you file your return for the 2024 tax year.
