Tax Considerations for People Who Are Separating or Divorcing
When couples separate or divorce, the change in their relationship status affects their tax situation. The IRS considers a couple married for tax filing purposes until they get a final decree of divorce or separate maintenance.
Update tax withholding
When a taxpayer divorces or separates, they usually need to update their proper tax withholding by filing with their employer a new Form W-4, Employee’s Withholding Certificate. If they receive alimony, they may have to make estimated tax payments. Taxpayers can figure out if they’re withholding the correct amount with the Tax Withholding Estimator on IRS.gov.
Tax treatment of alimony and separate maintenance
- Amounts paid to a spouse or a former spouse under a divorce decree, a separate maintenance decree or a written separation agreement may be alimony or separate maintenance for federal tax purposes.
- Certain alimony or separate maintenance payments are deductible by the payer spouse, and the recipient spouse must include it in income.
Rules related to dependent children and support
Generally, the parent with custody of a child can claim that child on their tax return. If parents split custody fifty-fifty and aren’t filing a joint return, they’ll have to decide which parent claims the child. If the parents can’t agree, taxpayers should refer to the tie-breaker rules in Publication 504, Divorced or Separated Individuals. Child support payments aren’t deductible by the payer and aren’t taxable to the payee.
Not all payments under a divorce or separation instrument – including a divorce decree, a separate maintenance decree or a written separation agreement – are alimony or separate maintenance. Alimony and separate maintenance doesn’t include:
- Child support
- Noncash property settlements – whether in a lump-sum or installments
- Payments that are your spouse’s part of community property income
- Payments to keep up the payer’s property
- Use of the payer’s property
- Voluntary payments
Child support is never deductible and isn’t considered income. Additionally, if a divorce or separation instrument provides for alimony and child support and the payer spouse pays less than the total required, the payments apply to child support first. Only the remaining amount is considered alimony.
Report property transfers, if needed
Usually, if a taxpayer transfers property to their spouse or former spouse because of a divorce, there’s no recognized gain or loss on the transfer. People may have to report the transaction on a gift tax return.
IRS Tax Tip: 2023-97
Our firm provides the information on our blog/vlog for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles on this website are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.