How Divorce Impacts Your Taxes

Filing Taxes After a Divorce

Many individuals are getting ready to go through the divorce process, and oftentimes, they already feel a range of emotions – on the one hand, they feel a sense of relief. But on the other hand, they could be worried about how the divorce process will impact their finances and what the outcome could look like.

Here, we’ve prepared one popular question parents have in relation to divorces and taxes: In the state of Texas, how will your divorce impact your tax situation?

This article will discuss how divorces will affect an individual tax-wise, and how to make sure that the tax filing process is as simple as possible following your divorce.

Your Filing Status When You Get a Divorce

One of the most common divorce tax questions is, “What should I file my taxes under?”

After a divorce is finalized, a person can no longer file their federal taxes under the “married filing jointly” or “married filing separately” statuses. Instead, depending on your situation, you can select “head of household” or “single.”

A divorced individual can file taxes as the head of your household and by doing so, it provides major benefits versus filing as a single individual. For instance, the individual can take a larger standard deduction, and also can be eligible for some beneficial tax credits. In addition, the tax rate will be lower. However, to file as the head of household, the following criteria must be met:

  • Must have an individual—or “qualifying person”—live with them for half of the year.
  • Must cover at least half the cost of maintaining a household.
  • They are not legally married as of the last day of the year that they are filing their tax return for.

When a couple divorces and both parties file their own taxes, neither party is allowed to file as the head of the household. Although each parent may appear to share the responsibilities of caring for and supporting shared children, only the parent with primary physical custody of the children can treat their children as qualifying individuals and enjoy the status of being the head of the household.

If both parents are splitting time with the children equally, the parent with the adjusted gross income that is higher has the right to claim the children as qualifying individuals.

How To Report Child Support and Alimony After A Divorce on Your Taxes

Being another popular question, the answer to this question will require going back and looking at the divorce decree. Within the decree, it will state which individuals have agreed to make spousal maintenance or child support payments. If the divorce papers were finalized in 2019 or later and then filed taxes, the individual paying the spousal maintenance can no longer deduct the money spent on spousal maintenance according to the United States’ most recent tax form. For the spouse that is receiving the payments, they are not required to include these payments as part of income that is being taxed.

When it comes to determining child support after a divorce, child support has never been treated as tax deductible for the individual making payments for it, and remains the same under the recent tax reform.

Claiming Dependents After You Get a Divorce and Filing Taxes

Another commonly posed divorce tax question – who can claim dependents during tax filing season?

Only one party can claim the children as dependents, and as mentioned earlier, this is usually the parent who is given custody.

However, if an individual has custody of the children that are being shared with the ex-spouse, they have the option of giving their spouse the right to claim the children as dependents instead. This is manageable by completing and signing Form 8332, which the other party must file with his or her taxes.

Who claims the children as his or her dependents when people divorce and file taxes is an important question because, as mentioned earlier, they get to file as the head of your household if they claim the children as dependents. Also, the parent can take advantage of various tax credits as well as other deductions when the children are listed under them as dependents. These include the following:

  • Child credit, worth $2,000 for each child
  • Earned income credit
  • Credit for dependent care and child care expenses
  • American opportunity credit for any qualified education expense

In Texas, which parent gets to claim the children as a tax exemption after a divorce?

This is a common question during a divorce or paternity proceeding. Naturally, parents want to know who will be able to claim their children on their tax return.

In most cases, referring to the Divorce Decree or Court Order will be ineffective because divorce decrees are usually silent on this particular issue.

Child Tax Exemption is governed by federal law, not Texas law.

Look at the Court Order for a short explanation of which parent gets to claim the children on their tax return in Texas. This will reveal who is the “Primary Conservator.” Only this parent is permitted to claim the children on their tax return.

This is due to Internal Revenue Code Section 152(e). The custodial parent is entitled to the child dependency exemption under this provision. For IRS purposes, the custodial parent can be determined by looking at the Court Documents or determining which parent has physical custody. This parent is in charge of the child the majority of the time.

In most cases, the answer is the parent who is the “Primary Conservator” of the children.

Exceptions to the Rule and Tax Exemption Sharing

The Internal Revenue Code allows divorced parents to share the Tax Exemption. The custodial parent must sign IRS form 8332 indicating that they will not claim the exemption.

When a parent files their tax return, they should use this form.

If the parents agree to split the tax return, it is critical to have not only an assignment of the dependency exemption in the Divorce Decree or Court Order, but also an executed IRS FORM 8332. Because, as previously stated, the Tax Exemption is governed by Federal Law rather than Texas Law. This means that the parents must follow federal procedures. This necessitates the completion of IRS Form 8332.

If this procedure is not followed correctly, the IRS may refuse to allow the noncustodial parent to claim the exemption themselves.

If you have any questions about How Divorce Impacts Your Taxes, please consult a Texas Divorce Law Firm. Their family law attorneys offer consultations that are free-of-charge at our office or over-the-phone. With a consultation, you experience a great opportunity for asking questions and receiving feedback about your circumstance. We hope to hear from you with any questions you may have

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