Middle of Divorce, what's the proper way to file taxes?

[Trymester3 6]

So...I am a US Citizen, my wife is a US Conditional Resident. We are in the middle of a divorce. All of the paperwork has been filed, but we are still waiting on a decree.

 

During 2014 and 2015 we were married filing jointly (It was solely based off of my income though, since she didn't work at all during those years). She started working August 30, 2016 and I saw her W2 showing $6000+ earnings for the year of 2016.

 

How should we file our 2016 taxes?

 

1.) Should I file as Single, and should she file as Single even though we are technically still married?

 Or

2.) Should we file Jointly/Married even though we are no longer together (but we were married for most of 2016)?

Or

3.) Something else?

 

*Additional Information, if she files solo she may receive some sort of refund since it's a W2. I work as an Independent Contractor so I work for a lot of companies, I never get a refund regardless of whether I file solo or jointly. I always have to pay money back. If we file jointly then there will be no refund for her, right? Also, our divorce is uncontested and there is no drama between us, so I'm not purposely trying to keep her away from any money, or get a cut of her refund. I just want all of the information that we submit to the IRS to align properly with all of the information that we've submitted to the USCIS (She did just submit the I-751with a divorce waiver to remove conditions on her Green Card).

[Ben&Zian 4,397]

You're married still so you can file jointly as married or separately but still would be under married.

[Trymester3 6]

If we file separately that means that she can get her refund, right?

 

Also, how does it work since we "were" together for nearly all 12 months of 2016?

 

How can we file separately, yet married at the same time? Also, if we file as "married" won't that confuse the USCIS if she ever needs to send in her 2016 tax transcript, since she just (today 2/9/2017) sent in her I-751 as "Divorced".

 

[f f 725]

all that matters is if you were married at the stroke of midnight on December 31.

 

if at that instant your divorce was finalized then you must file as single and include only your income with what ever adjustments for spousal support were agreed upon.

 

if at that instant you were married then you must file as married. if both of you agree to file jointly then you can file jointly but if either of you wants to file seperately then both must file seperately. there is no way either person can force the other to file jointly.

 

if you are still married and one person make a lot more than the other it would be beneficial to  have each person do thier taxes as filing seperately and then look at them as filing jointly since the lower effective tax rate might save you money. and there is no law against making an agreement to split up the extra tax refund that resulted in filing jointly so both people get some extra money.

 

good luck

[Rc123rc 528]

The filing category is "Married" since you were married midnight Dec 31, 2016. It then becomes a question of "Jointly" or "Separately." Since she made only $6K then she would probably get all taxes paid in if she filed separately. Otherwise, she would be included in your calculations at a higher tax rate and you'd have to figure out how much belongs to her.

[Trymester3 6]

Thanks for the replies. From my end (just my taxes by themselves) I will be getting NOTHING back since I work as an Independent Contractor and don't have anything withheld from my checks to cover taxes.

 

She presumably would get something back since she worked completely W2. I'm not sure what it means when you say: "she would probably get all taxes paid in if she filed separately".

 

I'm mostly concerned with how her health insurance may be affected if we do "married-filing separately". I don't want her to lose her Health Insurance just cause she's no longer with me. It's weird, but even though we are not on the same plan, she is unable to change her insurance without my permission (unless I request an extra special form).

 

Also, she sent in the I-751 petition to remove conditions on her green card today (2/09/2017). She sent it in with a DIVORCE Waiver, with the hopes that by the time she receives the RFE our Divorce Decree will have already been granted. If she ever needs to send her 2016 tax return transcript or her new health insurance information to USCIS for anything, won't it raise flags if for example, the I-751 form they received in Feb. 2017 said that she is divorced, but the April 2017 tax return says that we filed as married?

[f f 725]

you would also pay a lower effective tax rate of you filed jointly. that is where you get the advantage for filing jointly and you could offer to split your savings with her if she was willing.

 

what was the exact date the divorce was finalized?

[Trymester3 6]

The divorce has not yet been finalized.

 

She is waiting for the RFE 5-6 months from now to input the divorce date because we should definitely have it by then.

[f f 725]

if it is not yet finalized then there should be no issue keeping each other on insurance. may need to do paperwork if there is a name change though.

[Trymester3 6]

got it, I appreciate your reassurance

[Trymester3 6]

17 hours ago, f f said:

you would also pay a lower effective tax rate of you filed jointly. that is where you get the advantage for filing jointly and you could offer to split your savings with her if she was willing.

 

what was the exact date the divorce was finalized?

Super important thing that skipped my mind: Every single year after I do my taxes, I owe money. When filing jointly that means that we owe money. In 2014 and 2015 I owed money. Most likely in 2016, I will owe money as well. This is because of my independent contractor status. If we file jointly that means that we technically both owe that money. But if we do married solo filing would she still be held accountable for the money that I owe from the 2016 taxes?

[Rc123rc 528]

That requires your divorce lawyer. Any taxes owed normally is joint responsibility of both parties unless your Marital Separation Agreement says differently.The IRS can go after both of if you don't pay your taxes. My question would be why aren't you required to file quarterly estimated taxes with the IRS? I would think you would do this anyway just to avoid owing taxes at year end. 

[Trymester3 6]

I believe the quarterly filing had been mentioned to me in years past, but never specifically required.

 

I won't seek out any divorce lawyer, because I don't mind being the one that is on the hook for paying the amount the IRS says "we" need to pay.

 

After we get our divorce decree in a couple of months (perhaps after April 15), should we communicate this divorce decree info. to the IRS, or should we just wait until it's time to do the 2017 taxes to show that we actually had our divorce granted in 2016?

 

If I receive the divorce decree before April 15, 2017, should I make this information known to the IRS, or does it not matter either way since the IRS only cares about the time period from Jan. 1- Dec. 31, 2016?

[Villanelle 4,121]

You have a lot of questions here. Im going to try to address everything- As others have stated the IRS does its own thing- which isnt really a bad thing. People who are in the process of being divorced have options when it comes to what filing status to use during that time. Like stated the IRS looks at the last day of the calendar year (Dec 31) to determine your marital status. So if you are legally married on Dec 31 2016 then you are considered "married" to the IRS. In Dec 2017 you will be divorced, so you can no longer file as married- this is regardless of whether your divorce decree was dated Jan 1 2017 or Dec 30 2017. They are looking at the final day of the year to determine your status. So for those who have an date on the decree towards the end of the year they can not file as married even though they were for most of the year. (makes sense?)

 

If you were to move from one state to another- then its a different story dealing with the state tax returns. They do use formulations for how long youve been in each state to determine which state you file in. You havent mentioned anything about moving- so Im going to assume thats N/A. 

So since you guys were legally married on Dec 31 2016- you are considered "married" for tax year 16. You can file as married (joint return) or married filing separately. 

Now the USCIS likes to see married joint returns as proof of commingling assets. But there is NO requirement to file joint taxes by USCIS. They cant tell you how to file. Its your choice. Some people are married for decades and always file separately because it makes more financial sense. You should never do 'something' just to create proof for USCIS. If logically separate returns makes better sense- then thats what you do. Having filed married but separate during the divorce process is not unusual and is not going to cause USCIS to raise an eyebrow. Remember you have to follow the IRSs rules about what tax status you are- and to the IRS you are 'married' for the year 2016 based on Dec 31 2016. IRS doesnt care if you are married joint or married separate- and USCIS doesnt care either. They will just look at your selection of tax status for each year you were married to make sure you were filing as married type. Married joint is stronger evidence of co-mingling funds- but married separately can also show a relationship if it was done for the right reasons. (both parties benefit).

 

In order to file separate or a joint return, its sort of like the ROC petition. Both people have to be on board. You either both agree to sign a joint tax return or you have to file separately. For your situation YOU would benefit from filing jointly and your wife doesnt seem to know enough to demand separate returns but are being gracious enough to do it separately for her benefit. 

Now an issue is- Do you get health insurance from the Marketplace? If so you are required to file as married jointly. If you do not then you are not entitled to any credits. So any credits they gave you for 2016 to lower your monthly premiums you will have to pay back on your tax return. If this is not an issue then go ahead and do separate returns. If it is- are you willing to absorb the cost? Depending on how much they gave you in credits it can be a hefty bill due. 

 

If or when you file separately the IRS considers you guys two separate entities. When you file as joint you are one. If you have money owed (in the past) they will take it from any refund due to you. So a return filed jointly with an amount due that hasnt been paid will come out of either spouses separate returns in the future.  Do you have any past amounts due from joint returns? If not- there shouldnt be any problems with her getting a refund. (there is an issue in community property states however because in those any IRS debt incurred during the marriage is both spouses. I dont know what state you are in, but if it is a community property state even if you do separate returns the IRS will consider her as owing the money you owe and there are special tax forms she could fill out to not have them collect from her.) 

 

As for estimated payments- how long have you been in business? Technically they let you slide the first year on not sending estimated payments but then after that they expect you to send them. Its never really an issue if you file your taxes on time every year and pay in full or are owed money though. You may one day get a letter from IRS stating you need to make estimated payments- you may not. I believe if you do not pay what you owe in full or 90% of it then they assess a penalty for not paying estimated taxes. 

Finally you dont send proof of marital status to IRS. You didnt send them your marriage certificate to do your first "married" return, and you dont send them the divorce to go back to filing single. 

[Trymester3 6]

Damara, thank you for the lengthy reply. I really appreciate it. We do owe money from 2014 and 2015's taxes. I set-up an installment agreement where the money would be taken directly from my bank account, but that agreement has not been officially started by the IRS yet (I received a letter 2 days ago stating that I needed to wait for them to review facts.). I'm pretty sure it will go through though, since I did it in person. I communicated on the installment plan that they should only charge me and not her. If she is due $300 for example after filing her 2016 taxes, will the IRS take those $300 from her and apply it to the money we owe from 2014 and 2015, or will they leave it alone since I already told them that I would be paying that old debt myself via monthly payments?

 

Also, we are both on insurance via the NY State of Health Marketplace. In 2016 I was on medicaid and paid nothing at all. She was on something called Essential Plan 3 (since she was not eligible for medicaid, due to some immigration reasons) and paid nothing as well.