How is a Tax Refund Treated in a Divorce?
If you are in the middle of a separation or divorce, you may wonder how your martial status will affect your tax refund status. In fact, there are some things you must take into consideration when dealing with you and your (soon-to-be) ex-spouse’s refund status.
How Are You Filing?
One of the first things that could affect your federal refund status is how you are filing. If you divorced on or before December 31st of last year, you should both file as “Single.” If the divorce didn’t go through until the new year began, you should file as either “Married but filing separately” or “Married filing jointly.”
Although you may not want to deal with your ex-spouse, keep in mind the tax benefits of filing jointly are greater than filing separately. It can lead to a much higher federal refund status for both of you.
If you’re filing as single for the first time in a long time, keep in mind that you may be able to claim Head of Household. This can greatly improve your federal refund status. Getting to file as Head of Household comes with some restrictions, though.
- Divorced by the last day of last year
- Paid more than half of expenses supporting household
- Have a qualifying child or other person according to IRS rules
- Must be able to claim child or other person as dependent
In this case, “other person” can mean someone like a parent who lives with you. If you supported them and paid for half the expenses in the house, you should be able to qualify. Make sure to file as Head of Household to get a better refund status.
Other Things to Consider
There are several other things to consider when filing after your divorce. For one, you may be able to deduct certain fees that came with the divorce itself for a better refund status. While you can’t deduct, for instance, legal costs for the divorce, you can deduct fees you paid to get post-divorce tax advice.
You should also take alimony into consideration when determining your federal refund status. You must include alimony payments you pay or receive as part of your return. The spouse who pays can also use this amount as a deduction for a better refund status.
Your Living Situation and Your Refund Status
A final thing to consider when figuring your federal refund status is your living situation. If you are already living separately, you may need to adjust your tax withholding. It may still be covering both your spouse and you. You need to change it to where it only covers you.
While this might not affect your federal refund status this year, it will greatly impact it for next year. You can change it by filing a new W-4 at your job. If you’re self-employed, you should refigure the amount of estimated tax you pay each quarter.
If you are filing as single, there should be no impact on your federal refund status. This may change if the IRS is going to garnish funds because of lack of alimony or child support payments.