A change in marital status means many changes to your tax situation. It’s important to inform the IRS of these changes and review the effects of your different options in order to get the most beneficial tax results.
If you have changed your legal address, the IRS has to be officially informed by filing Form 8822. If you change your name, you need to inform the Social Security Administration, using Form SS-5.
To avoid withholding too much or too little from your paychecks now that your family size and/or family income has changed, ask your HR department for a new W-4 form and make the necessary changes.
There are five tax-filing statuses: single, married filing jointly, married filing separately, head of household, and qualified widow(er) with dependent child. While the last option is not available to you, which of the other options you use depends on multiple variables.
The IRS considers your marital status as of midnight on December 31. If your divorce was finalized on December 30, you cannot file with either of the “married” options. If you don’t get divorced until January 1, you cannot file as “single,” even if you did not live together, because you were still married as of December 31.
If, however, you were separated for more than six months, you were paying the majority of household expenses, and you have at least one dependent, you can file as “head of household.”
Before determining your tax filing status, consider the tax effects of each of your options. While married filing jointly has a higher standard deduction, you are then both liable for whatever taxes are incurred. If your income is significantly lower than your spouse’s, you may be better off filing as married filing separately or as head of household, if that is an option. Remember, however, you cannot file as single if you are still legally married on December 31.
If the divorce decree does not dictate who claims the children, the IRS rules that the parent with whom the children stay for the majority of the year (usually the custodial parent) can claim them as dependents. In the unlikely event that they stay with each parent the exact number of days in a year, the parent with the higher adjusted gross income can claim them.
The parent who claims the children is then eligible for other tax benefits: an increase in Earned Income Credit, possible Child Tax Credit, Child and Dependent Care Credit, and educational or medical deductions.
Alimony and Child Support
Child support is neither tax deductible by the payer nor needs to be reported by the receiver. The thought is that if the parents had not divorced, they would be paying for their children’s food, clothing, and housing, none of which is tax deductible, therefore child support is not tax deductible.
Alimony is handled differently, depending on whether your divorce took place before or after December 31, 2018.
For divorces prior to 12/31/18, the payer is able to deduct alimony from taxable income, and the receiver has to report the alimony as taxable income. For divorces after 12/31/18, the payer may not deduct alimony from taxable income, and the receiver does not report the alimony as taxable income.
This significant change is due to the Tax Cuts and Jobs Act, which went into effect for alimony as of January 1, 2019. Divorces prior to that date are grandfathered into the old tax law unless modifications are made to the divorce agreement.
Given the many changes that can take place in the first year or two after divorce, it’s best to work with a tax advisor who is familiar with the tax challenges associated with divorce. A good divorce lawyer should be able to recommend a tax professional who can help you.