How Is Legal Separation Treated for Tax Purposes?

How Is Legal Separation Treated for Tax Purposes?
Legal separation can change how income taxes are filed.

Filing Status for a Separated Person

A legally separated person without a divorce decree or agreement that is recognized under state law must file as married, filing jointly, or married, filing separately. The same filing status is used for both state and federal returns. With married, filing jointly, both parties file the tax return together, and a refund is issued in both names. Any taxes due will be owed by both parties. With married, filing separately, each party files a separate return. Each spouse will get any refunds due, but tax liability is still shared by both parties. Both taxpayers have to enter information about the other spouse on the return, such as a current address and a valid Social Security number.

Relief from Joint Tax Liability

Persons who are legally separated under state law can apply for relief from tax, interest, and any penalties owed on a joint return. This type of relief is called separation of liability. Separated spouses who still lived together when the return was filed do not qualify for this relief unless the spouse requesting it was a domestic violence victim during that time. Another type of relief, called innocent spouse relief, may be applied for by a separated person who has proof of lack of personal knowledge of owed taxes.

Tax Credits and Deductions

A separated couple receives the same tax credits and deductions any married couple would, depending on what type of return is filed. Under married, filing jointly, the separated spouses still claim credits and deductions for all dependents together. Under married, filing separately, one person can claim all the dependents or the dependents can be split between both filers. No dependent can be claimed on two different tax returns in the same tax year. Typically, a separation agreement will have rules regarding what each parent is allowed to claim, but the IRS will not have knowledge of these agreements. If a separated person who was supposed to claim the dependents has a tax return rejected because the other spouse claimed the dependents, a disputed return must be filed. Disputed returns are done on paper and mailed with a letter of explanation and supporting documents such as a certified copy of the separation agreement.

Taxes and Legal Separation

According to the IRS, Publication 504, in order for a taxpayer to be considered unmarried, the person must have a final decree of divorce or a maintenance agreement by the last day of the tax year. Maintenance agreements are contracts made by the divorcing couple privately or with the aid of attorneys that are signed and entered by a family court judge. Individuals who are legally separated the entire tax year or have a temporary divorce decree are still considered married by the IRS, and the tax rules for a married couple still apply. However, there are some circumstances that allow a separated person to be considered unmarried.

Exceptions

Separated persons may be able to file as Head of Household in specific situations. A separated person may be considered unmarried if he or she is filing a separate return, he or she maintained the residence where the dependent lived for more than half the year, and the other spouse lived somewhere else for at least six months. The other spouse must then file as married, filing jointly. However, this does not apply if a legal separation agreement is in place that gives the spouse who lived elsewhere the right to claim a dependent. Additionally, a separated spouse who does not have primary custody under a separation agreement is required to obtain and file a signed declaration from the custodial spouse with the tax return in order to claim any dependents.