The tax effects of divorce and separation
Updated: Nov 12, 2021
If you are divorcing or recently divorced, taxes may be the last thing on your mind. However, these events can have a big impact on your wallet. Alimony and a name or address change are just a few items you may need to consider. Here are some key tax tips to keep in mind:
· Child Support — If you’re making child support payments, they aren’t deductible. If you receive child support, the amount you receive isn’t taxable.
· Alimony Paid — If you make payments under a divorce or separate maintenance decree or written separation agreement, you may be able to deduct them as alimony. This applies only if the payments qualify as alimony for federal tax purposes. You can't deduct alimony or separate maintenance payments made under a divorce or separation agreement (1) executed after 2018, or (2) executed before 2019 but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification. Alimony and separate maintenance payments you receive under such an agreement are not included in your gross income. Voluntary payments made outside a divorce or separation decree aren’t deductible. You must enter your spouse or former spouse's Social Security Number or Individual Taxpayer Identification Number on your Form 1040, Individual Tax Return, when you file.
· Alimony Received — If you get alimony from your spouse or former spouse, it’s taxable in the year you get it. Alimony is not subject to tax withholding so you may need to increase the tax you pay during the year to avoid a penalty. To do this, you can make estimated tax payments or increase the amount of tax withheld from your wages.
· Name Changes — If you legally change your name after your divorce, notify the Social
Security Administration of the change. File Form SS-5, Application for a Social Security Card.
You can get the form on SSA.gov to order it. The name on your tax return must match SSA records. A name mismatch can delay your refund. You cannot apply for a card online. There is no charge for a Social Security card. This service is free.
· Spousal IRA — If you get a final decree of divorce or separate maintenance by the end of your tax year, you can’t deduct contributions you make to your former spouse's traditional IRA. You may be able to deduct contributions you make to your own traditional IRA.
Health Care Law Considerations
· Special Marketplace Enrollment Period — If you lose your health insurance coverage due to divorce, you are still required to have coverage for every month of the year for yourself and the dependents you can claim on your tax return. Losing coverage through a divorce is considered a qualifying life event that allows you to enroll in health coverage through the Health Insurance Marketplace during a Special Enrollment Period.
· Changes in Circumstances — If you purchase health insurance coverage through the
Health Insurance Marketplace, you may get advance payments of the premium tax credit. If
you do, you should report changes in circumstances to your Marketplace throughout the
year. These changes include a change in marital status, a name change, a change of
address, and a change in your income or family size. Reporting these changes will help
make sure that you get the proper type and amount of financial assistance. This will also help you avoid getting too much or too little credit in advance.
· Shared Policy Allocation — If you divorced or were legally separated during the tax year and are enrolled in the same qualified health plan, you and your former spouse must allocate policy amounts on your separate tax returns to figure your premium tax credit and reconcile any advance payments made on your behalf.