Divorced or Separated and Income Taxes
A divorce or separation is a life event that has many tax implications on your next tax return. Let eFile.com help you with the tax part of a divorce or separation. Once you answer a few simple tax questions during the eFile process, we will help you prepare and e-file your tax return using the correct tax forms for your situation. Start your 2022 Tax Return on eFile.com to be ready for the deadline of April 18, 2023.
If a divorce agreement was finalized before January 1, 2019, there is no change in the federal income tax treatment of divorce-related payments. Alimony payments still qualify as deductible expenses for the alimony payer if the time-honored list of specific tax-law requirements apply. Thus, alimony payments can be written off on the payer’s 2022 1040 IRS Income Tax Return. As a result, the expense does not need to be itemized. The recipient of 2022 alimony payments must list these payments as taxable income on their 2022 Tax Return.
For payments required under divorce or separation instruments that are executed after December 31, 2018, the recent tax law eliminates the deduction for alimony payments. Therefore, the payer in this situation cannot claim deductions on those payments on their 2022 Tax Return. Recipients of affected alimony payments from agreements finalized after Dec. 31, 2018 do not have to include them as taxable income on their 2022 Tax Returns.
Instead of worrying about these timeframes, simply file with eFile.com and the tax app will report your information on the proper forms with the correct deductions and taxable incomes.
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Divorce, Separation and Taxes
Whether you're separated or divorced affects your taxes in several ways, including:
- Filing status: If you are separated but have not obtained a final decree of divorce or legal separation by December 31 of a tax year, you can only file as married filing jointly or married filing separately since you are considered married for the entire year. If you are divorced or legally separated by December 31, you are considered not married for the entire year and you can file as single or head of household if you have a qualifying dependent.
- Dependents: When you're separated but not legally separated or divorced, you and your spouse can claim your dependent(s) on one joint tax return or file separate returns with the married filing separately status and have one child claimed per return. If you are divorced and have a divorce decree naming a custodial parent, only the custodial parent can claim a child.
- Health Insurance Coverage: During separation, your health insurance coverage usually does not change. However, if you lose coverage through a divorce, it is considered a life event that allows you to enroll in health coverage through the Marketplace during a Special Enrollment period. You can report on your tax return that you had Marketplace insurance throughout the year as a result. If you and your former spouse are enrolled in the same Marketplace health insurance policy, you need to calculate your Premium Tax Credit amounts on separate tax returns and reconcile any advance payments that were made on your behalf. When you utilize the eFile.com app, we will generate the proper healthcare based on the information you provide during the tax interview.
- IRA Retirement Account Contributions: If you are not legally separated or divorced by December 31 of a tax year, you will be able to deduct any contributions you make to your ex-spouse's traditional IRA. Otherwise, you can only deduct contributions to your own traditional IRA.
A divorce or separation can impose many personal and financial changes. We at eFile.com would like to help resolve complicated tax questions for you. If you prepare and e-file your taxes at eFile.com, you do not need to know all these details outlined here, but rather only answer a few simple online yes or no questions and we will do the rest for you. You can be assured that, based on your answers, your income tax return will be done in your best interest.
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Alimony Payments and Taxes
In order to determine whether the alimony payer can deduct or the alimony payee can exclude alimony payments on a 2022 Tax Return, the year in which your divorce or separation agreement was finalized is the deciding factor. Visit the alimony payments and taxes page for a detailed overview and check your divorce or separation agreement for further details.
Child Support and Taxes
Child support is a recurring payment made from one ex spouse to the other for the benefit of the child. These payments are always nontaxable for the recipient and are not deductible for the payer. If child support goes unpaid, any federal tax refund will be taken or garnished by the IRS to satisfy this debt.
- Child Support Payer: You cannot deduct child support payments you made to your former spouse on your income tax return. Unlike alimony, nothing changes as a result of recent tax reform for child support payments as it relates to your taxes. Child support is for your child or children and is paid to the spouse who lives with the children. Unless your divorce or separation settlement states that the payments can be considered alimony, you cannot deduct child support you paid to your former spouse on your tax return.
- Child Support Payee or Recipient: If you received child support payments, you do not have to report them as income on your tax return since the payments are tax-free, regardless of the year when your divorce or separation agreement was finalized.
Income Tax Examples of Alimony and Child Support Payments
Consider the following situations based on various divorce or separation agreements:
- Jan and Bob's divorce settlement dated July 31, 2018 states that Bob must pay Jan $150 a month ($1,800 a year) as alimony and $200 a month ($2,400 a year) as child support. If he paid the total of both yearly payments ($4,200), he can deduct $1,800 as alimony on his 2022 Tax Return and she must report the $1,800 on her 2022 Tax Return as alimony received. However, if he only paid $3,600 in 2022, $2,400 of that amount is child support. Therefore, he can only deduct $1,200 ($3,600-$2,400) as alimony on his 2022 Return and she can only report $1,200 as alimony received on her 2022 Return. This is because the settlement was reached prior to the tax reform.
- According to their legal separation agreement dated December 31, 2017, Sue must pay George's dental and medical expenses. Unless the agreement states the payments cannot be claimed as alimony, she can claim a tax deduction on her alimony payments on her 2022 Tax Return. He needs to report the alimony he received on his 2022 Tax Return and can include them when calculating his deductible medical expenses.
- In October 1984, Bill and Marge executed a written legal separation settlement. In May 1985, a divorce decree replaced their separation settlement. However, the divorce decree did not change the alimony terms in the separation settlement. Therefore, Bill can still deduct his alimony payments on his 2022 Tax Return since the divorce decree is treated as issued before 1985.
- Mary must pay Michael $8,000 a year in alimony and $4,000 in child support according to their divorce statement dated February 2, 2021. She cannot claim the alimony as a deduction on her 2022 Tax Return and he does not need to report the alimony as income on his 2022 Tax Return. The same applies for the child support payments.
Claim a Child As a Dependent After Divorce, Separation
Use this simple and free interactive tool to find out which divorced or separated parent can claim a child on an income tax return:
Start the DEPENDucator Tool
As a general rule, a child can only be claimed on one of the divorced parent's tax return; use the Dependucator Tool to find out if it's you or not. You claim your child as a dependent on your tax return if the divorce decree or legal separation agreement names you as the custodial parent. Otherwise, the child is your dependent if they lived with you for a longer period of time during the year than with your former spouse. However, if both you and your former spouse claim the same dependent, the IRS will apply tie-breaker rules to determine which former spouse qualifies to claim the child.
What if your ex-spouse wrongly claimed your dependent or claimed them in the incorrect year?
Starting with Tax Year 2018 and ending with Tax Year 2025 (tax return due in April 2026), the dependency exemption for dependent children has been abolished. This is because the Child Tax Credit was increased. As of now, the dependency tax exemption will be reintroduced for Tax Year 2026. The dependency exemption stopped with Tax Year 2017, but it applies for 2017 and previous tax years for taxpayers who are filing back taxes. Only one parent can claim the dependency exemption. The parent who claims the dependency exemption is also entitled to the $1,000 Child Tax Credit for each child under 17, assuming his or her income is not too high.
This is usually a straightforward decision if you have a divorce decree which names the custodial parent. If not, you are considered the custodial parent if your child lived with you for a longer period during the year than with your former spouse. Sometimes the noncustodial parent can claim the exemption if the custodial parent signs a waiver pledging that he or she won't claim the child. A parent will claim the dependency tax exemption when they are not entitled to it. If your former spouse files his or her tax return before you do, it is possible that he or she would be allowed the exemption, at least temporarily. Once the IRS looks at your return and they detect a duplicate Social Security Number (your child's SSN) being claimed by another taxpayer, the situation changes. Find out what happens when two people claim the same dependent.
Tax Return Considerations for Divorced, Separated Parents
This free, easy-to-use and interactive tool will determine the correct tax return filing status for you as a divorced or separated individual and/or parent:
Start the STATucator Tool
Simply answer a few easy questions and the tool will present your filing status. If you are not yet officially divorced before the end of the year, you can still file a joint return with your spouse. You will lose the option to file a joint return when your divorce decree becomes final.
If you cannot file a joint return for the year, you can file as head of household and get the benefit of a bigger standard deduction and more advantageous tax brackets. You are generally eligible for this status if you had a dependent living with you for more than half the year and you paid for more than half of the upkeep for your home. Otherwise, you may need to file as single.
Here are some other tax and financial considerations for going through divorce:
- Medical Bills and Expenses: How will your divorce/separation affect your medical bills and expenses? If you continue to pay your child's medical bills after a divorce or legal separation, you can include those costs in your medical expense deductions even if your ex-spouse has custody of the child and claims them as a dependent.
- Tax Credits For Parents: You can claim certain tax credits for being a divorced parent, such as the Child Tax Credit or an education tax credit. If you do not claim the dependent, you cannot claim an education credit even if you pay any education bills. Even if your former spouse qualifies to claim your child as a dependent, you can still claim the Child and Dependent Care Tax Credit for work related expenses you incur to care for a child under age 13. Remember that only the parent who claims the child as a dependent can claim the Child Tax Credit.
- Asset Transfer(s) and Taxes: Sometimes a divorce settlement will transfer property from one spouse to another. If that happens, the beneficiary doesn't pay tax on that transfer. It’s important to note that the property's tax basis will also shift. For example, if you receive property from your former spouse in the divorce and you later sell it, you will pay capital gains tax on all the appreciation before as well as after the transfer. So you need to consider the tax basis as well as the value of the property when you are splitting up property in a divorce settlement.
- Retirement Assets Transfer and Taxes: During a divorce, it is important to carefully handle your retirement savings. If you decide to give your 401(k) money to your former spouse, the IRS may consider that a taxable distribution and you will be taxed on it. In order to avoid this, you should arrange for a transfer under a qualified domestic relations order (QDRO) which will allow your former spouse access to the 401(k) funds and you will not be stuck paying the tax. See more details on retirement distributions.
- Sale of a Home and Taxes: If you and your former spouse decide to sell your home when you get divorced, there may be capital gains tax impacts on you. Usually, you can avoid tax on the first $250,000 of gain on the sale of your primary home if you have lived in it for two out of the past five years of ownership. If you sell property after your divorce and if the two above provisions (own and live) have been met, you and your former spouse can each exclude up to $250,000 of gain on both of your returns. If the sale happens after the divorce, then you may qualify for reduced exclusion even if the two-year tests have not been met. Also, if you receive the house in your divorce settlement and then sell it some years later, you can exclude up to $250,000. The amount of time that your former spouse owned the house will be added to your period of ownership in the two year test.
- Name Change After A Divorce: If you changed back to your previous last name as a result of a divorce or separation, you should notify the Social Security Administration (SSA) and report any changes made as soon as possible. When a tax return is e-filed, the name must match both the SSA and IRS records. A name mismatch can result in a return that is rejected by the IRS when it is e-filed. The return will then have to be paper filed which can result in a delayed refund. Learn how to change your name with the SSA and IRS.
Additional Related Tax Information on Divorce, Separation, and Marriage
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