Divorce status form

Divorce obviously changes a lot of things in your life, but it’s not until the April following your divorce that you might realize one of them: divorce affects your income tax. Whether you’re in the process of negotiating your divorce settlement now, or sitting down to file your taxes solo for the first time in years, here are some things you should know about the impact of divorce on income taxes.

Your Filing Status Might Need to Change.

The changes to your income tax return start high up on the first page, with your filing status. During your marriage, you and your spouse probably chose “married, filing jointly” as your tax filing status. If you were divorced on or before December 31, 2019, you are no longer eligible for that status.

Your options now are to file as “single,” or as “head of household,” if you qualify. Generally, head of household (HOH) status offers more benefits than does single status, but you must be eligible for it. To qualify for head of household filing status on your income tax return, you must:

  • Be a U.S. citizen or resident alien for the entire tax year;
  • Be unmarried as of the end of the tax year (with very limited exceptions involving separation);
  • Maintain a household for a dependent child or other dependent relative, such as a parent;
  • You must reside in the household and it must also be the qualifying dependent relative’s home for more than half the year;
  • You must have been financially responsible for more than half of the cost of maintaining the household.

Where this can get tricky for newly divorced parents is when they have their children for almost, but not quite, half of the overnights in a year. In practice, there’s not a lot more expense involved in having your kids for 183 nights than 182, but it could make a big difference for your taxes.

Advantages of head of household filing status include having a higher standard deduction and a lower tax rate than single filers, and being able to make more money before the need to pay income tax kicks in.

Spousal Maintenance Doesn’t Have the Same Impact on Income Tax That it Used To.

If you know someone who has been divorced for a few years and who pays or receives spousal maintenance (alimony), you might think that alimony payments are deductible from income for the person making them, and included in income for the person receiving them. Indeed, that is the way it used to work. But the federal Tax Cuts and Jobs Act (TCJA) that took effect in 2018 changed all that. If you have a new order for spousal maintenance, including a new divorce decree, you’ll find that the person paying spousal maintenance pays income tax on those dollars, not the person receiving it.

That’s unfortunate news for people paying alimony, and arguably good news for the people receiving it; on the one hand, they aren’t paying income tax on that money, but on the other, their ex-spouses may be less willing to offer generous spousal maintenance payments, since they don’t get a deduction anymore. The big winner? The federal government, which gets more income tax payments, since payers of alimony are usually taxed at a higher rate than recipients.

It’s Worth It to Claim Your Kids on Your Tax Return, But Maybe Not For the Reason You Think.

Divorcing couples used to bicker and bargain over who got to claim the kids on their income tax return. Typically, the parent with custody had the legal right to claim the kids, but could transfer it to the other parent. That right was worth money, because of personal exemptions. An exemption meant that you could exempt thousands of dollars from taxable income for yourself and each person for whom you could claim an exemption.

The TCJA did away with personal exemptions, at least through tax year 2025. (Technically, the law didn’t eliminate the exemption, but set it at $0, which has the same effect on your wallet.) But there are still advantages to claiming your child as a dependent on your tax return. A parent who claims a child as a dependent is eligible for the Child Tax Credit (CTC), which reduces income tax dollar-for-dollar. A parent claiming a child as a dependent may also be eligible for the Earned Income Tax Credit (EITC) and the Child and Dependent Care Credit.

If the custodial parent is willing to transfer the right to claim the child or children as a dependent to the other parent, they can do so using IRS Form 8332. This form must be attached to the income tax return of the non-custodial parent every year that they want to claim the child.

If you are recently divorced, you may want to consult with your tax professional about how to minimize any negative impact of your divorce on your income taxes. If you are still married, but headed toward divorce, speak with an experienced Minnesota divorce attorney to make sure that your divorce settlement is negotiated and written to give you the greatest possible advantage on your income taxes next year. We invite you to contact Mundahl Law with any questions you have about divorce and income tax.