If you're getting a divorce, you may have wondered how the changes in your financial affairs will affect your taxes. We can't give you specific legal advice, and we can't cover everything in a blog post, but there are several basic ways your divorce affects taxes.
First, you should know that child support is not considered taxable income to the recipient and it cannot be deducted by the payer. Also, only one parent can claim each child as a dependent for tax purposes.
According to the IRS, the custodial parent is the one who should generally claim the children as dependents. But who is the custodial parent if you share parental rights and responsibilities? The IRS considers the custodial parent to be the one with whom the child resided for the majority of the year.
That said, you may have agreed to something different in your divorce agreement. If you have, the IRS will honor that as long as you document it. If the noncustodial parent will be claiming one or more children as dependents, the custodial parent should fill out a Form 8332 or make a similar release of their claim to exemption. The noncustodial parent should then attach the form or declaration to their own tax return.
Alimony, on the other hand, is considered income. That means the recipient should claim alimony as income on their taxes and the payer should deduct it, according to the IRS. Payers of alimony can deduct the payments even if they don't otherwise itemize.
Be aware that alimony is not accounted for in your tax withholding, so alimony recipients may want to adjust your withholding amount so they don't end up with a surprise tax bill. Another option is to pay estimated taxes during the year.
You may also need to make adjustments to any automatic contributions you're making toward any individual retirement accounts you may have. If your divorce was made final this year, you will not be allowed to deduct contributions you've made toward your ex-spouse's IRA. You will still be allowed to deduct contributions to your own IRA, if you otherwise qualify to do so.
Finally, you should report any name change to the Social Security Administration. The name on your tax return needs to match your Social Security account. If there is a mismatch between the records, the IRS may have problems processing your tax form and there may be a delay in your refund.