Assignment of estimated tax payments in a divorce.

• Author: Borkes, Jason

Since the 1970s, divorces have been much more common in the United States than they were previously. Divorces raise legal issues such as possession of assets, custody of children, claims to income, and countless others. One issue that is often overlooked is the allocation of estimated tax payments to the taxpayer's and spouse's income tax returns, when they file separate returns in the year of the divorce.

Background

When a couple have filed joint returns in the past and file separate returns in the current year due to a divorce, estimated tax payments for the current year are typically credited to the first person listed on the previous year's joint tax return. The first person listed is the "taxpayer," which is usually the husband. Issues arise when the "spouse," usually the wife, earns most of the income in the relationship. Consider the following:

Example 1: J and K filed a joint tax return for the 2013 tax year with J listed as the "taxpayer" and K listed as the "spouse." J's income in 2013 was $100,000 while K's income was $900,000, for a combined $1,000,000 of taxable income on their joint tax return. In 2014, the couple expect to have more income than in 2013 so they use the safe-harbor method of making estimated tax payments and pay a total of $435,000 in estimated tax. By the end of 2014 the two are divorced. When J files his 2014 tax return, he will have a large overpayment of tax since the $435,000 in estimated tax payments are credited to his return, which has minimal income. K's return will have a large balance due since she has substantially all of the income with no estimated tax payments to her name.

Currently, there is no rehable way to communicate to the IRS and state taxing authorities that the estimated tax payments belong to the spouse, even though they are under the taxpayer's Social Security number since the taxpayer is listed first.

Publication 505

According to IRS Publication 505, Tax Withholding and Estimated Tax, couples who have filed joint returns in the past and will be fifing separate returns in the current year due to a divorce can divide estimated tax payments in any way they can agree upon. If an agreement cannot be made, estimated tax payments for the current year should be divided in proportion to each spouse's tax as shown on their current year's separate returns. Consider the following:

Example 2: J and K are fifing separate tax returns in 2014. They have paid a total of $435,000 in estimated tax for...