In Maryland, filing taxes while separated presents some challenges that may be confusing. People are often unsure which filing status to use or how separation agreements affect their taxes. Choosing incorrectly can lead to costly mistakes, including paying more taxes or facing IRS penalties. Understanding how Maryland’s tax laws and federal guidelines apply to separated couples can help avoid issues and maximize tax benefits.
This guide was designed for separated couples in Maryland and explains the different tax filing options, relevant deductions and credits, and how separation agreements impact taxes. We also compiled some of the most common mistakes people make when filing taxes while separated and actionable steps to avoid them.
Filing Status Options in Maryland
In Maryland, your filing status influences your tax rate, eligibility for credits, and overall tax liability. Therefore, choosing the right filing status is the first step to correctly filing taxes during a separation.
Here are the main filing statuses to consider:
Married Filing Jointly
Couples who are legally married on the last day of the tax year can file a joint tax return. This status often provides the lowest tax rate and the most benefits, including access to higher income limits for tax credits.
However, filing jointly makes both spouses jointly responsible for any taxes owed, including penalties and interest. This is called “joint and several liabilities.”
Married Filing Jointly requires trust and cooperation, as any errors or omissions could impact both parties. Keeping accurate records and having clear communication is essential if choosing this option.
Married Filing Separately
This status is for married couples who want to keep their finances separate. In Maryland, separated couples often choose this option when they do not want to share responsibility for each other’s tax debts.
When filing separately, each spouse is responsible for their own taxes and must calculate their refunds or liabilities individually. It is important to note, this filing status has the following limitations:
- You cannot claim certain credits, such as the Earned Income Tax Credit.
- You may face a higher tax rate compared to filing jointly.
- Both spouses must itemize deductions or take the standard deduction; one cannot itemize while the other takes the standard deduction.
Filing separately provides financial protection but may result in higher taxes. Consulting a Maryland family law attorney is advisable to understand the long-term implications.
Head of Household
Separated couples may qualify for the Head of Household status if they meet specific conditions:
You must have paid more than half of the household expenses such as rent or mortgage, utilities, groceries, and other living expenses.- You must have a qualifying dependent, such as a child.
- You must have lived separately from your spouse for at least the last six months of the tax year.
Filing as Head of Household offers a higher standard deduction and a more favorable tax rate than Married Filing Separately. It also allows you to claim credits such as the Child Tax Credit and Earned Income Tax Credit. However, be sure to keep detailed records to support your claim in case of an IRS audit.
Tax Deductions and Credits
Separated couples in Maryland can access various tax deductions and credits. Knowing which ones apply to your situation can lower your tax bill and maximize your refund.
Child Tax Credit and Dependency Exemption
For parents, determining who claims a child as a dependent is essential. Typically, the custodial parent—defined as the one with whom the child spent the most time during the year—is entitled to the Child Tax Credit and dependency exemption. However, the noncustodial parent may claim the child if the custodial parent provides written consent using IRS Form 8332.
Including this agreement in your separation documents is imperative to avoid conflicts. Misunderstandings about who can claim a child can lead to IRS audits and delays in processing your tax returns.
Alimony Payments
Alimony is another important consideration. Under the Tax Cuts and Jobs Act (TCJA), alimony payments are no longer tax-deductible for the payer, nor are they considered taxable income for the recipient if the couple executed the divorce or separation agreement after December 31, 2018. However, if the couple made the agreement before that date, different rules apply.
If you are paying or receiving alimony, check the date of your agreement to understand your tax responsibilities. Consulting a Maryland family law attorney can also help clarify these rules.
Mortgage Interest Deduction
If you still own a home jointly, you can deduct your mortgage interest. However, only the spouse who actually pays the mortgage can claim the deduction. This can be tricky if both spouses contribute to the mortgage. Keep detailed records of who contributed to the mortgage payments to avoid disputes.
The Impact of Separation Agreements on Taxes
Separation agreements in Maryland play a vital role in tax filings. These agreements outline the spouses’ financial responsibilities, child custody arrangements, and alimony payments. If drafted properly, they can help avoid disputes when filing taxes.
Best practices include the following:
Clearly Defined Terms
A well-written separation agreement should clearly state:
- Who claims the children as dependents
- Who pays alimony, how much, and when
- Responsibility for mortgage and other shared expenses
Amending Separation Agreements
Life events, such as a change in income or custody arrangements, may require updating your separation agreement. Amending the agreement legally to reflect any changes in terms is essential. Verbal agreements will not withstand an IRS audit. Work with a family law attorney in Maryland to ensure all amendments are legally binding and enforceable.
Consult an Experienced Maryland Family Law Attorney
Filing taxes while separated in Maryland involves understanding complex rules and making critical financial decisions. Choosing the correct filing status, knowing which deductions and credits you qualify for, and ensuring clear separation agreements can make a big difference.
If you are uncertain about how to proceed or need help drafting or amending a separation agreement, contact Milstein Siegel to consult a Maryland divorce lawyer.
Rely on our expertise and experience to safeguard your rights and interests. With informed decisions and professional guidance, you can file taxes with confidence and assurance.
