Tax Considerations for Divorced and Divorcing Couples by Joanie B. Stein, CPA
Posted on January 13, 2017 by Joanie Stein
Couples who separated or began the process of divorce during 2016 should remember that their marital status will affect their individual tax filings in April 2017. Following are some tax tips to keep in mind.
Name Change. Individuals who change their names after a divorce must notify the Social Security Administration (SSA) by completing Form SS-5, Application for a Social Security Card, which can be found online at www.SSA.gov or by calling (800) 772-1213. It is important that the name on an individual’s tax return matches the name on file with the SSA to prevent any delays in the processing of the tax return and potential refund.
Alimony Paid. Individuals may deduct alimony paid to a spouse or former spouse under a divorce or separation agreement by entering the spouse’s Social Security Number or Individual Taxpayer ID Number on Form 1040. However, voluntary payments made to a former spouse outside of the divorce or separation agreement are not deductible. The same holds true for and property settlements, which are neither deductible nor taxable as income.
Alimony Received. Alimony is considered taxable income to the recipient. Because these payments are not subject to tax withholding, recipients may need to adjust the amount of taxes they pay throughout the year by either increasing the amount withheld from their wages or making estimated tax payments.
Child Support. Payments of child support are neither deductible by the payer nor taxable to the recipient.
Spousal IRA. If a divorce decree or maintenance is finalized before the end of the tax year, an individual may only deduct contributions made to their own individual retirement accounts; Contributions to a former spouse’s IRA are not deductible.
Filing Status. Married couples who separated but did not yet finalize a divorce during the calendar year have the option to file their 2016 tax returns jointly or as married filing separately. Once the divorce is final and filed with the court, neither party may file jointly for that or any subsequent tax year.
Health Care Law Considerations. Under the Affordable Care Act, individuals who purchase health insurance through a Marketplace must report any changes in their personal circumstances (i.e. name change, address change) to the Marketplace to ensure they receive the proper financial assistance to which they are entitled. Similarly, should an individual lose health insurance due to a divorce, he or she must enroll in new coverage during a Special Enrollment Period. Obamacare requires all individuals to have coverage for every month of the year or risk exposure to an individual shared responsibility payment.
About the Author: Joanie B. Stein, CPA, is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where she helps individuals and businesses implement sound tax-planning strategies. She can be reached at the CPA firm’s Miami office at (305) 379-7000 or at email@example.com.