Tax Filing Considerations for Divorced Couples

As April 15 quickly approaches, more people are seeking to file their taxes each day. However, for couples who have recently divorced, filing taxes may present unique challenges. Many find themselves asking similar questions regarding how each individual will file their taxes during and after divorce proceedings, which spouse can claim the child or children as dependents, and whether or not alimony and child support are tax-deductible.

Do I file jointly or separately?
An individual’s marital status at the end of the year determines how he or she will file their taxes. If the person was divorced by midnight on December 31 of the year, he or she will file their taxes separately from their former spouse. Individuals will qualify as married, even if they are separated, as long as there is not a final court judgment that ended the marriage. Temporary orders, including alimony, child support, or child custody, do not impact marital status. For those married for part of the year, but at the end of the year are divorced, they will file as “single” or “head of household.”

For those in the middle of a divorce by the end of the tax year, the couple may file “married filing jointly” or “married filing separately,” depending on what they agree to. There are pros and cons to whether the couple files jointly or separately. It is important that each individual consults both their divorce attorneys and their tax professionals and make a decision that benefits each party.

If a divorcing couple decides to file as “married filing jointly,” the filing status must be agreed upon by both spouses. A court order cannot tell a spouse to file a joint return if they don’t want to. In rare circumstances, the Internal Revenue Service (IRS) may allow relief options to spouses who file jointly, including “innocent spouse,” “separation of liability,” and “equitable relief” as outlined in IRS Publication 971.

Couples in divorce proceedings who choose to file as “married filing jointly” should ensure that their marital settlement or judgment, or a separate agreement, includes provisions on how the couple will deal with any tax liabilities or refunds. If a refund is distributed by check, the couple should make sure that the check is paid to both spouses jointly or have a written agreement that whoever receives the refund check will distribute the other spouse’s share of the amount that they are entitled to. If the refund will be distributed by direct deposit, it is important that it is routed to a joint account or that the couple prepares a written agreement to determine how the funds will be distributed after it is deposited. Tax liability and refunds do not have to be divided equally. Written agreements can be established to ensure that the tax liability and refunds are fair and consistent with overall property division.

Who claims the kids?
The spouse who claims the child or children may be eligible for a valuable tax deduction. For each dependent, a parent can deduct $3,900 from their taxable income and receive a child tax credit . Although some divorced parents have a 50-50 child custody agreement, many do not have written agreements regarding who can claim the child or children on taxes. Regardless of whether the spouse has primary or joint custody, only one parent can claim the child or children on their taxes each year. It is common that the custodial parent – the one that the child spends more than half the year with – to claim the dependent; however, it is federal law that ultimately determines who claims a dependency exemption.

Up until a couple of years ago, individuals could specify in a divorce decree which parent could claim the dependency exemptions. However, as of 2009, individuals must use IRS Form 8322 “Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent” to make the determination.

The IRS also has certain tests for determining which spouse is the custodial parent who can claim the child or children for taxes. The dependent must have a qualifying relationship with the parent, such as son, daughter, foster child, descendant (such as a grandchild), brother, sister, step-sibling or extended descendant (such as a niece). The child must be younger than 19 years old by the end of the tax year or be under 24 years old and enrolled full-time in school. As of 2016, parents may claim a child who is permanently and totally disabled, regardless of age. The child must have lived with the parent for more than 50 percent of the year. The child cannot have provided more than 50 percent of his own support for the tax year.

A parent’s gross income may also determine if they are eligible for a federal and state child tax credit. New York State’s child tax credit is referred to as Empire State child credit. If an individual claims the Empire State child credit they will receive 33 percent of the federal child tax credit and federal additional child tax credit attributed to qualifying children or $100 multiplied by the number of qualifying children. In order to qualify for the refundable credit, the parent must be a New York resident or married to a full-year resident, have a qualifying child, and must have a federal tax credit or federal additional child tax credit or meet federal adjusted income requirements. The federal adjusted gross income thresholds to qualify for child credit are $55,000 for married couples filing separately; $75,000 for head of household, and qualifying widowed filers; and $110,000 for married couples filing jointly. For every $1,000 the parent or parents are over in income, the available child tax credit is reduced by $50.

If a custodial parent wants to give the dependency exemption to the non-custodial parent, he or she can sign IRS Form 8332 to release an exemption claim. Once the form is filed with their tax form, the custodial parent cannot claim a child tax credit.

What about when it comes to alimony and child support?
Although child support is not an expense that can be deducted by the person who pays it, alimony is tax-deductible. Also, the individual who receives alimony must claim it on his or her tax return. Child support is not reported as income. However, if the couple rolled their support together as “family support” in a divorce agreement, the resources will be fully taxable to the recipient and can be deducted by the payer. Family support combines child support and spousal support into one payment.

There are complex financial issues that may arise when a couple seeks to end their marriage. When there are assets and children involved, the divorce process can become increasingly difficult to navigate. It is important that an individual who is seeking a divorce from their partner consult an experienced New York divorce lawyer who will work with you to determine what course of action is best for him or her and will protect both legal and financial interests during the divorce process. Blodnick, Fazio & Associates PC handles all aspects of matrimonial and family litigation, including divorce, mediation, negotiation, maintenance (alimony) and the division of assets. For more information or to schedule a consultation, call our New York divorce law firm at (516) 280-7105 or fill out our contact form.

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