The IRS has changed the tax laws and rules that relate to divorce and separation. If you are divorced or recently separated and facing a divorce, the last thing you want to think about is taxes; however, these major life events can affect it.
Here are some key points to consider so that you can stay compliant with the IRS.
If you pay alimony to your spouse or former spouse, those payments are tax-deductible. The recipient of the payments must also include them with their income taxes.
Alimony doesn’t include child support, non-cash property settlements, payments that are part of community property income, and payments intended for property keep up.
The Tax Cuts and Jobs Act changed the alimony rules. Under the Act, and beginning in January of this year, spouses cannot deduct or add alimony to their tax returns if it was ordered as part of a divorce or separation agreement that was executed after December 31, 2018.
If the divorce or separation agreement was executed before December 31, 2018, and then modified after that date, the new law still applies. Contact the IRS or work with an Enrolled Agent, such as those at SCL Tax Services, for details.
Child support payments are not deductible on your taxes and cannot be added to your income if you are a recipient of child support.
If your final divorce decree or separation agreement is filed by the end of the tax year, you cannot deduct contributions made to your former spouse’s individual retirement account (IRA). However, you may be able to deduct contributions made to your traditional IRA.
If your name changed in your divorce, you are required to notify the Social Security Administration. You can apply for a Social Security Card using File Form SS-5, which you can get on SSA.gov or by calling (800) 772-1213. The name listed on your tax return must match the SSA records. If your name is mismatched, you could face problems when it comes to processing your tax return. If you are owed a tax refund, that payment may also be delayed if your name doesn’t match.
The health care law states that you must have qualifying health care coverage, or qualify for an exemption, or make a shared responsibility payment. If you lose your health insurance coverage in your divorce, you are still required to have coverage each year for yourself and any dependents you claim on your tax returns. Losing your health care coverage due to divorce is considered a qualifying life event. This allows you to enroll in health care coverage through the Health Insurance Marketplace during the enrollment period.
If you purchase healthcare coverage through the Health Insurance Marketplace, you may be able to take advantage of advanced payments of the premium tax credit for the tax year 2018. You can report your changes in circumstances to the Marketplace throughout the year. For instance, if you were divorced, your name changed, or your income and family size changed. Reporting these changes will help to ensure you get the proper type and amount of financial help. You can also avoid getting too much or too little tax credit.
If you were divorced or legally separated from your spouse, but you were enrolled in the same qualified health plan, you and your spouse must allocate your policy amounts on each of your separate tax returns. This allows you to figure your premium tax credits and reconcile advance payments that may have been made on your behalf.
If you are considering divorce, are recently separated or currently going through a divorce, you may have questions about your tax status and liabilities. Contact SCL’s tax experts, now helping clients in and near Bronx, Eastchester, Westchester, Mount Vernon, and Yonkers, NY. As Enrolled Agents, we can help clients throughout the country alleviate their IRS issues and minimize their tax burdens.
Call now for a free 15-minute tax consultation and we will help you stay tax compliant following your divorce or separation.