Divorce and Taxes: Who Claims the Kids, What to Deduct, and How to File Right
Category:
Understanding the Intersection of Divorce and Income Tax Filing
With a new year comes the filing of income tax returns. As you open your W-2 from your employer, you, like many going through a dissolution, may be wondering how you should file your tax return, who is going to claim the children as dependency exemptions, and how to determine whether the support payments should be deducted or included as income.
The first thing to know is that the answers to these questions are not necessarily the same for everybody. The tips your friend or relative gave you, as relayed by his or her accountant, may not be the best course of action for you. Given the complexity of tax laws, it is always a good idea to speak with a professional who can analyze your situation and advise as to the best course of action.
What Determines Your Filing Status After Divorce?
Marital Status on December 31st:
Your tax filing status depends on your marital status on the last day of the calendar year.
- Still Married: You can file jointly or separately.
- Legally Separated or Divorced: You may file as Head of Household or Single, based on custodial arrangements and household expenses.
Head of Household Status Requirements:
- You paid more than half the cost of keeping up a home.
- A qualifying person (typically your child) lived with you for more than half the year.
Who Can Claim the Children as Dependents?
If filing separate returns, you must determine who will claim the children as dependents.
General Rule:
The primary custodial parent will take the exemption, but that parent can release the exemption to the other parent using IRS Form 8332.
Important Considerations:
- Releasing the exemption can impact:
- Head of Household filing
- Child Tax Credit
- Earned Income Credit
- Guideline Child Support Calculations
Tip: The dependency exemption is different from claiming the child for tax credits; these should be strategically planned with legal and financial advisors.
How Support Payments Affect Your Taxes: Alimony vs. Child Support
Child Support
- Not taxable to the recipient.
- Not deductible by the payer.
Spousal Support (Alimony)
- Taxable for divorces finalized before January 1, 2019.
- Not taxable/deductible for divorces finalized after December 31, 2018, due to the Tax Cuts and Jobs Act.
IRS Compliance Requirements for Alimony:
- Must be made in cash or equivalent.
- Governed by a written divorce or separation agreement.
- Spouses cannot live in the same household.
- Payment must terminate at the death of the recipient.
IRS Forms to Know During Divorce
| IRS Form | Purpose |
|---|---|
| Form 8332 | Release of Claim to Exemption for Child |
| Form 1040 Schedule 1 | Report alimony received (pre-2019 divorces) |
| Form W-4 | Adjust withholding based on new filing status |
| Form 8862 | Reclaim disallowed tax credits (if applicable) |
| Form 1040-X | Amend previously filed returns |
Filing Taxes When Divorce Isn’t Finalized Yet
If your divorce isn’t finalized by December 31, you are still considered married for tax purposes.
Your Options:
- File Married Filing Jointly (may reduce tax burden)
- File Married Filing Separately (useful if legal or financial risks are present)
How Divorce Impacts Child Tax Credits & Phase-Outs
- For 2023 returns, the Child Tax Credit phases out for:
- $200,000 AGI for Single/HOH
- $400,000 AGI for MFJ
Key Consideration: Only the parent claiming the child can receive the credit.
Watch for overlapping claims, this will trigger IRS flagging and delays.
FAQs
Can both parents claim the child if they split custody 50/50?
No. Only one parent may claim the child. If there’s a conflict, the IRS applies a tie-breaker rule favoring the parent with higher AGI.
What happens if both parents claim the child?
Expect IRS rejection or audit. Only one parent can legally claim the dependent exemption.
Can I claim Head of Household if I pay alimony?
Not necessarily. The designation is based on maintaining a household for a qualifying child or dependent.
What if my divorce finalized mid-year?
Your filing status is based on your status as of December 31 of that year.
Final Thoughts: Divorce + Taxes = Strategic Planning
The basics of how your dissolution impacts your income taxes, and how your income taxes impact your dissolution, are not only helpful at tax time. Understanding these concepts also may contribute to informed decisions that can ease and simplify your dissolution, making your education a worthwhile investment.
If you’re facing tax complexities during or after divorce, don’t guess.
Visit DivorceDigest.com for trusted legal-tax insights.
Schedule a consultation with a certified family law and tax attorney today.
