Transcript Slide 1

Federal Income Taxes
and Family Law
Divorce or Separation
Filing Status
• Marital Status
▫ Unmarried
▫ Married
• Married Persons
▫ Can file jointly or separately.
▫ Separated or divorced in current tax year
• Exception
▫ If you live apart from your spouse, under certain
circumstances, you may be considered unmarried
and can file as head of household.
Married Filing Jointly
• Both must include all income, exemptions,
deduction, and credits on that return.
• Signing a Joint Return
▫ Both must sign or it will not be considered filing
• Joint and Individual Liability
▫ Both may be held responsible for penalties
• Divorced Taxpayers
▫ You are jointly and individually responsible for any
tax, interest, and penalties due on a joint return for a
tax year ending before your divorce.
Joint Return/Joint Liability
• Three types of relief under IRC §6015.
1. Innocent Spouse Relief
which applies to all joint filers.
2. Separation of liability
Applies to Joint filers who are divorced, widowed,
legally separated, or who have not lived together
for the 12 months ending on the date on which
election of this relief is filed.
3. Equitable Relief
Applies to all joint filers who do not qualify for
innocent spouse relief or separation of liability.
Injured Spouse
• You can get a refund of your share of the
overpayment if you qualify as an injured spouse.
• You are an injured spouse if you file a joint return
and all or part of your share of the overpayment was,
or is expected to be, applied against your spouse’s
past-due debts.
• To be considered an injured spouse, you must:
1. Have made and reported tax payments, or claimed a
refundable tax credit, and
2. Not be legally obligated to pay the past-due amount.
Married Filing Separately
• If you and your spouse file separate returns, you
should each report only:
▫ Your own income, exemptions, deductions, and
credits on your individual return.
▫ You can file a separate return even if only one of
your had income.
Married Filing Separately
• Separate Liability.
• Itemized deductions or standard.
• Separate returns may give you a higher tax.
Changing Your Filing Status
• Joint Return after Separate Returns
• Separate Returns after Joint Return
Head of Household
• Requirements.
▫ You are unmarried or “considered unmarried” on
the last day of the year.
▫ You paid more than half the cost of keeping up a
home for the year.
▫ A “qualifying person” lived with you in the home
for more than half the year (except for temporary
absences, such as school).
Head of Household
• You are considered unmarried on the last day of
the tax year if you meet the following tests.
▫ You file a separate return.
▫ You paid more than half the cost of keeping up
your home for the tax year.
Head of Household
▫ Your spouse did not live in your home during the
last 6 months of the tax year.
▫ Your home was the main home of your child,
stepchild, or foster child for more than half the
▫ You must be able to claim an exemption for the
 However, you meet this test if you cannot claim the
exemption only because the non-custodial parent
can claim the child using the special rule for
divorced or separated parents.
Keeping Up a Home
Head of Household
• You are keeping up a home only if you pay more
than half the cost of its upkeep for the year.
• This includes:
▫ Rent, mortgage interest, real estate taxes,
insurance on the home, repairs, utilities, and food
eaten in the home.
• This DOES NOT include:
▫ The cost of clothing, education, medical
treatment, vacations, life insurance, or
transportation for any member of the household.
Qualifying Child Definition
Head of Household
• To be a taxpayer’s qualifying child, a person
must satisfy four tests:
Special Rule for Divorced/Separated Parents
Head of Household
• The noncustodial parent cannot claim the child
head of household filing status,
the credit for child and dependent care expenses,
The exclusion for dependent care benefits,
And the earned income credit.
• Only the custodial parent can claim the child as
a qualifying child for these four tax benefits.
Earned Income Credit
• You must:
1. Have a valid Social Security Number (if joint,
spouse must have a valid Social Security
2. Have earned income from employment or selfemployment
3. Have a filing status other than married, filing
4. Be a U.S. citizen or resident alien all year, or a
nonresident alien married to a U.S. citizen or a
resident alien and filing a joint return
Earned Income Credit
• You must:
5. Not be a qualifying child of another person (if joint,
your spouse also cannot be a qualifying person)
6. Not have investment income over a certain amount
7. Not file Form 2555 or 2555-EZ (related to foreign
earned income), and
8. Have a qualifying child or:
Be age 25 but under 65 at the end of the year
Living in the U.S. for more than half the year, and
Not qualify as a dependent of another person
Earned Income Credit
Tax Year 2009
• NEW for Tax Year 2009, is the additional EITC
and income thresholds for a Third Qualifying
Child and Changes to the Uniform Definition of
a child.
• The change to the Definition of a qualifying child
adds two new rules:
▫ The child must:
 Be younger than then person claiming the child.
 Not have filed a joint return other than to claim a
Earned Income Credit
Tax Year 2009
• Earned Income and adjusted gross income (AGI)
must each be less than:
▫ $43,279 ($48,279 married filing jointly) with
three or more qualifying children.
▫ $40,295 ($45,295 married filing jointly) with two
or more qualifying children.
▫ $35,463 ($40,463 married filing jointly) with one
qualifying child.
▫ $13,440 ($18,440 married filing jointly) with no
qualifying children.
Earned Income Credit
Tax Year 2009
• Investment income must be $3,100 or less for
the year.
• The maximum of Advance EITC workers can
receive from their employers is $1,826.
• Tax Year 2009 maximum credit:
$5,657 with three or more qualifying children.
$5,028 with two qualifying children.
$3,043 with one qualifying child.
$457 with no qualifying children.
Dependency Exemption
• The term dependent means:
▫ A qualifying child or a qualifying relative
Dependency Exemption
Special Rule for Divorced or Separated Parents
• A child will be treated as the qualifying child or
relative of his or her noncustodial parent if ALL of
the following apply.
▫ Parents
 Are divorced or legally separated under divorce decree or
separate maintenance, separated under written
separation agreement, or lived apart during the last 6
months of the year.
▫ Child received over half of his or her support for the
year from the parents
▫ Child is custody of one or both parents for more than
half of the year.
▫ Custodial parent signs written declaration Form 8332
Child Tax Credit
• Maximum amount you can claim is $1,000 per
qualifying child.
• Only the parent claiming a dependency
exemption for the child can qualify for the child
tax credit
Child And Dependent Care Credit
1. Care must be for one or more qualifying
2. You (and your spouse if married) must have
earned income during the year
3. You must pay child and dependent care
expenses so you can work or look for work.
Child and Dependent Care Expenses
Divorced or Separated Parents
• Even if you cannot claim your child as a
dependent, he or she is treated as a qualifying
person if:
▫ Child was in the custody of one or both parents for
more than half the year, and
▫ You were the child’s custodial parent (parent with
whom the child lived for the greater part of 2009).
Child and Dependent Care Expenses
Divorced or Separated Parents
• ***The noncustodial parent cannot treat the
child as a qualifying person even if that parent is
entitled to claim the child as a dependent under
the special rules for a child of divorced or
separated parents.
Child Support
• Is not deductible to the Payer
• Not includible as income to the Payee
• Generally Deductible to the Payer
• Includible as income to the Payee
Can be designated as “not alimony” by the parties
Alimony Requirements
Separate Return
Payment in Cash
Not designated as “not alimony”
Spouses not members of same household at the
time the payments are made
• No obligation to make payments after death of
• Payment is not child support
Payment in Cash
• Cannot be services or use of payer’s property
• Cannot be Promissory Note to pay
• Can be payments to third party
▫ In lieu of payments directly to payee
▫ Written request by payee received before return
Not Designated as “not Alimony”
• Written statement
• Signed by both parties
• References previous agreement (ie Final
Judgment or support order)
• Attached to the return when filed
Cannot be members of the same
• Sharing the same home, even if separate
sleeping quarters
• Only applies if you there is a divorce decree or
written separation agreement (legal separation)
Not obligated to make payments after
death of payee
• Must be part of decree or by state law
▫ Florida terminates alimony at death or remarriage
Not Child Support
• Specifically designated as child support if:
▫ Payment reduced on the happening of a
contingency relating to the child or
▫ Can be clearly associated with the contingency
Child Support
• Contingency relating to the child include the
Becoming employed
Leaving the household
Leaving school
Reaching a specified age or income level
Lump Sum Alimony Payments
• Cash or Noncash property settlements, whether
in a lump sum or installments, do not qualify as
• Voluntary payments (i.e., payments not required
by a divorce decree or separation instrument) do
not qualify as alimony.
Recapture of Alimony
• Alimony payments decrease or terminate during
first 3 calendar years
• May Require inclusion of previously deducted
alimony payments
• If paid to a child or other dependent (not
deductible by plan participant)
• If paid to the former spouse, includible in gross
income of former spouse
▫ Could possibly roll over the amount
• Contributions to former spouse’s IRA
▫ Not deductible in year of divorce
• Transfers of all or part of IRA as a result of
divorce decree, not considered a taxable event
Property Settlements
• Generally, not taxable event (no gain or loss) if
incident to divorce
• Exceptions are:
▫ Spouse is nonresident alien
▫ Certain transfers in trust
▫ Certain stock redemptions
Incident to Divorce
• Occurs within 1 year of end of marriage or
• Related to the ending of the marriage
▫ Made under the original or modified Final
Judgment and
▫ Occurs within 6 years after the date the marriage
Sale of Jointly-Owned Property
• Must report your share of gain or loss
• Remember exclusion for primary residence
▫ 250,000 individually, 500,000 jointly
Gift Tax
• Possible consequences if the transfer does not
qualify under the exception for transfer between
spouses or former spouses