Residents of North Carolina who have gone through a divorce may soon need to adjust their approaches to filing their taxes. Perhaps the most important recent change is that a divorced party will now file as “single,” which means that records must be kept separately for use in the process of preparing a tax return. If the divorced party is a custodial parent of a child under the age of 17, however, the parent may file as head of household. Additionally, it is important to be sure that one’s Social Security number is not being used by an ex-spouse for their return.
Currently, a divorce settlement that involves alimony or child support could carry tax implications for either party. For example, the individual paying alimony used to be able to deduct those amounts from their own taxable income, and the recipient needed to report these funds as income. However, this rule is now outdated and will only apply to divorces finalized on or before December 31, 2018, since alimony will no longer be treated as taxable income after this date.
Child support, on the other hand, is not deductible to the paying party and does not count as income for the recipient. An individual who owes support but falls behind on payments could face problems with collecting an income tax refund, as these funds could be garnished to satisfy outstanding obligations.
In 2019 and beyond, divorce agreement proceedings should address the issue of claiming children as dependents on a tax return. While the most recent tax law eliminated exemptions, the child tax credit can still total up to $2,000 on a tax return. Dependency can be important for obtaining other tax credits as well, such as the child care credit for working persons and education credits.
In some cases, parents’ returns won’t be helped by claiming a child, which may allow the other party to make the claim instead. If both parents could benefit, however, then a divorce settlement might provide for a rotating schedule, allowing parents to take turns in claiming a child. Transference of dependency may require filling out Form 8332 – Release of Exemption to Noncustodial Parent.
During divorce proceedings, you might be focused as a parent strictly on the imminent issues of finances and custody. However, a lawyer could address your rights and responsibilities related to income taxes and other situations to ensure that these factors are considered during settlement negotiations.
IRS Publication 504 and Publication 1819 can also be helpful resources in assessing your divorce situation, though nothing can replace the advice and guidance that an experienced family lawyer can offer.
This page was written with help from Michael Mansback, CPA. For further information, you can contact him at mlmcpa27@gmail.com.
