Topics on this page
- Dependency Exemptions
- Filing Status and Final Return
- Alimony & Child Support
- Allocation of Joint Income, Deductions, and Payments
In a divorce, the parents may agree in a settlement about which parent gets to claim which dependent child or children. If the parents do not agree, the court may decide. If a divorcing spouse does not follow the court order, the court may hold them in contempt. However, presenting a court case about dependency exemptions is complicated and best done after speaking with a lawyer. The case may involve expert testimony, such as from an accountant.
If parents do not agree upon the sharing of dependency exemptions, Internal Revenue Service (IRS) rules will dictate who may claim dependency exemptions. That choice may depend on which parent has the majority of overnights with a minor child and which parent has paid the majority of the expenses of a dependent child over 18. Learn more about who you may claim as a dependent from the IRS website.
In divorce settlements, dependency exemptions can sometimes be used to benefit both spouses. Generally, the settlement agreement will state who is entitled to claim which of the children, as well as various conditions under which this will change (such as when only one of multiple children remain eligible to be claimed as a dependent).
But the agreement only determines what you and your spouse have decided about who is entitled to the exemption. Under the Internal Revenue Code section 152(e), the exemption belongs to the custodial parent unless the custodial parent executes a release. That release must be signed by the custodial parent and attached to the non-custodial parent's return for any year in which the non-custodial parent claims an exemption deduction. The release can cover a single year, specific multiple years, or all future years. The IRS form for the release is Form 8332 (pdf).
Read the law: 26 United States Code § 152
Filing Status and Final Return
Barring remarriage, a non-custodial parent generally will be "single" and a custodial parent may be "head of household." A planning idea that can be a win-win in joint custody cases where there are multiple dependent children, though, is to have each parent be a "custodial parent" with respect to at least one child. In that way, both parents may qualify for "head of household" status. "Head of household" tax rates are more beneficial than "single" tax rates. Learn more about your filing status from the IRS website.
A taxpayer's marital status is determined as of December 31 (the last date of the tax year). So, if you are still married on December 31, generally the choice is between "married filing separately" and a joint return. If you are divorced by December 31, generally the choice is between “single” and “head of household” if neither parent is remarried. If the couple have been living apart for the last six months of the year, it is possible that one or both might qualify as "head of household."
The decision to file a joint return can have an impact beyond the tax difference between a joint return and two separate returns. Taxpayers have "joint and several liabilities for deficiencies" on a joint return. You may be liable for any deficiencies that the IRS finds in your joint return, even if it results from errors in your spouse’s reporting. If you are concerned that the other spouse might have unreported income or be claiming improper deductions, it may be wise not to file joint income tax returns. If you file separate tax returns while married, this can impact how you each claim deductions (itemized or standard) and who claims which deductions.
If you decide to file a joint return, you cannot change your mind and file a separate return later. However, if you file a separate return, it is possible to file an amended joint return later. You and your spouse can also sign an agreement about addressing any problems arising from past joint tax returns and how future tax returns, refunds, and liabilities will be handled as between you and your spouse. If you and your spouse could get substantial savings from a joint return, but you are concerned about being saddled with the other spouse's deficiency, one option may be for you and your spouse to file separate returns. If you later learn that the other spouse's return had no deficiencies, you and your spouse can file an amended joint return prior to the expiration of the statute of limitations (generally, three years from the date the original return was filed or two years from the time the tax was paid, whichever is later).
Read the Law: 26 United States Code §6013(b)(2).
Innocent Spouse Relief
If your spouse has (in the past) hidden taxable income from the IRS, and you signed a joint tax return for those years, you may be responsible for past due taxes if your spouse is caught. The IRS has a special "innocent spouse tax relief" provision that can help if you have been held responsible. Generally, if you thought your spouse had paid the taxes due, or the IRS increased your taxes because of your spouse’s unreported income or disallowed deductions and you knew nothing about your spouse’s unreported or erroneous items when you signed the return, tax relief may be available to you.
Injured Spouse Relief
If you filed a joint return, and all or part of your share of a refund was applied against your spouse’s debts, you may be able to get a refund of your share of the overpayment under the “injured spouse” provision. For example, if your share of the refund was used to pay your spouse’s past-due federal tax, state income tax, child or spousal support, or federal nontax debt, such as a student loan, you may be entitled to injured spouse relief.
To be considered an injured spouse, you must:
- Have made and reported tax payments (such as federal income tax withheld from wages or estimated tax payments), or claimed a refundable tax credit, such as the earned income credit or additional child tax credit on the joint return; and
- Not be legally obligated to pay the past-due amount.
Alimony & Child Support
The tax implications of alimony depend on when the divorce was finalized. For divorces finalized before December 31, 2018, alimony is taxable for the recipient and deductible for the payer. For divorces finalized after that date, alimony is tax-free for both parties. The details of your separation agreement may affect how those payments are taxed.
Child support is never deductible and is not considered income.
See: IRS Publication 504.
When you have a major life change, such as divorce, you should complete a new Form W-4 (Employee’s Withholding Certificate) and submit the completed Form W-4 to your employer as soon as possible. This will help you make sure you have the right amount of tax withheld from your paycheck based on the changes to your situation.
The IRS provides a Tax Withholding Estimator tool that can help to estimate the federal income tax you want your employer to withhold from your paycheck. You can use your results from the Tax Withholding Estimator to help you complete a new Form W-4.
Allocation of Joint Income, Deductions, and Payments
If you don't file a joint return, a number of complications may arise. If you and your spouse had planned to pay your tax bill by having the taxes withheld through each of your W-2's, then there is no way to shift the withholdings to another return. If you and your spouse made joint estimated tax payments, they may be divided in whatever way you and your spouse agree. If there is no agreement between you, the IRS will divide them based on relative tax liability. Read IRS Publication 505, Tax Withholding and Estimated Tax, to learn more.
If it becomes clear before all estimated tax payments are made that you and your spouse may file separate returns, then the person making the payments should submit them as individual estimated tax payments.
In addition, if you don't file a joint tax return, you and your spouse should decide who is to report joint income and which of the parties will claim joint deductions. This may seem to be a simple matter but sometimes it is not. For example, disputes frequently arise over which spouse is entitled to claim mortgage interest and real property tax deductions, who is entitled to claim charitable deductions paid from a joint bank account, and how to handle over-withholding and under-withholding of taxes. If you have questions like these, talk with an accountant or tax advisor. The IRS may be more likely to audit you if both spouses separately try to claim the deductions.
Refund checks issued from a joint return are usually mailed to the address shown on the tax return or deposited in the account specified. The IRS will not issue two checks payable to each spouse separately.