Financial Counseling Certification Program (FiCEP) Practice Exam

If someone recently separated from a spouse, what should they potentially review regarding their taxes?

1. Their estate planning documents

2. Their income tax withholding

3. Their investments

4. Their retirement plans

The correct answer is: Their income tax withholding

Understanding the implications of a recent separation on taxes is crucial, and reviewing income tax withholding is particularly important in this context. When someone separates from a spouse, their marital status changes for tax purposes, which can affect their tax bracket and potentially their overall tax liability. Individuals may need to adjust their withholding to reflect their new situation, especially if they were previously having taxes withheld based on the combined income of a married couple. A change in withholding could help them avoid underpayment penalties or a large tax bill when they file their return as a single filer instead of a joint return. Adjusting the withholding can also assist in aligning expected tax refunds or balances due with their new financial circumstances stemming from the separation. While reviewing estate planning documents, investments, and retirement plans is also critical during this transitional period, the direct impact on tax withholding and immediate financial management makes it a priority. Understanding how to handle income tax withholding can provide immediate relief and help with financial planning post-separation.