The post-Labor Day surge in family law cases comes with many questions, including concerns about upcoming holidays, and whether a divorce will be finalized by year-end. For some, the imminent tax extension deadline for personal returns creates additional questions for clients. Depending on the stage of your divorce proceeding, you may have questions about your 2023 tax year, and the tax implications as a result of your divorce in the years ahead.
Your tax filing status affects items such as amount of income tax paid by you, as well as credits and deductions that may be claimed. Your marital status on 12/31 of each calendar year dictates your options for how you may file your taxes; if you have not been issued a divorce decree on or before December 31st of any tax year, then – regardless of how you may identify to friends and family – you are still married as far as the IRS is concerned. It is important to note that in Pennsylvania, the Courts do not grant a “legal separation” so, for purposes of taxes, until you have received a divorce decree, you are considered married. Your options for filing status may include Married Filed Jointly, Married Filing Separately, or Head of Household. Generally, “Married Filing Separately” results in additional taxes owed by both parties and may not be financially advantageous. It is not uncommon for married individuals to agree to delay entry of a divorce decree so that they receive the benefit of filing joint returns for that calendar year.
Another issue that regularly arises around important tax deadlines is the issue of claiming children as dependents and for other related credits such as the credit for child and dependent care expenses.
A child can only be claimed as a dependent by one parent. That parent is generally the custodial parent, which is defined by the IRS regulations as the parent with whom the child resided with “for the greater number of nights during the year.” In cases of equally shared physical custody, the custodial parent is the parent who has the higher adjusted gross income. The custodial parent may agree that the noncustodial parent may claim the child or children as their dependent(s) by signing a release. However, it is important to consult with your accountant if you are the noncustodial parent, because claiming a child as a dependent does not mean you may automatically claim other credits.
Despite the IRS regulations and guidelines on tax issues relating to children, parents may enter into agreements where they alternate the ability to claim the child. This is common in cases involving multiple children and shared physical custody.
Support obligations that were entered into on or after January 1, 2019, including alimony pendente lite and alimony, are not tax deductible to the person paying the obligation and are not taxable income to the spouse receiving support. In order to receive the tax benefit for an alimony obligation, your agreement regarding alimony, or Court Order, must have been entered on or before December 31, 2018. Following the change in this law, the formula used to calculate support obligations was adjusted to account for the fact that the person paying support no longer receives the benefit of a deduction.
It is important to also note that child support obligations are never tax deductible.
A divorce has many implications on an individual and family, both financial and emotional. The Obermayer Family Law team is available and able to assist during these proceedings. While we are well versed in the tax implications that result from a divorce, it is important to always consult with your accountant when making tax related decisions including, but not limited to filing status and credits.
The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.
Stephanie is a family law attorney in Obermayer’s office in Doylestown, PA. She concentrates her practice in all aspects of family law, including divorce, custody, child and spousal support, equitable distribution, adoption,...
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