What is your Filling Status ?
When taxpayers file their tax return, it’s important they use the right filing status because it can affect the amount of tax they owe for the year. It may even determine if they must file a tax return at all. Taxpayers should keep in mind that their marital status on Dec. 31 is their status for the whole year.
Sometimes more than one filing status may apply to taxpayers. When that happens, taxpayers should choose the one that allows them to pay the least amount of tax.
Here’s a list of the five filing statuses:
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1. Single. Normally this status is for taxpayers who aren’t married, or who are divorced or legally separated under state law.
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2. Married Filing Jointly. If taxpayers are married, they can file a joint tax return. If a spouse died in 2016, the widowed spouse can often file a joint return for that year.
3. Married Filing Separately. A married couple can choose to file two separate tax returns. This may benefit them if it results in less tax owed than if they file a joint tax return. Taxpayers may want to prepare their taxes both ways before they choose. They can also use this status if each wants to be responsible only for their own tax.
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4. Head of Household. In most cases, this status applies to a taxpayer who is not married, but there are some special rules. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person. Don’t choose this status by mistake. Be sure to check all the rules.
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5. Qualifying Widow(er) with Dependent Child. This status may apply to a taxpayer if their spouse died during 2014 or 2015 and they have a dependent child. Other conditions apply.
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Head of Household Status
Filing as head of household gives taxpayers a larger standard deduction and a wide tax bracket for calculating income taxes, as compared to a single filing status. The tax rules for filing as head of household may appear confusing. Taxpayers must follow the IRS guidelines to the letter to avoid being subjected to tax audits and investigations for non-compliance.
Requirements for Filing as Head of Household
The U.S. Internal Revenue Service provides guidelines every year to help taxpayers in the United States understand whether or not they qualify for the head of household status when filing federal income taxes:
#1 Maintaining a household
The IRS requires that a taxpayer must’ve paid more than half of the expenses involved in maintaining a household. The qualifying expenses include household bills such as utility bills, insurance, groceries, rent/mortgage, property taxes, and repairs. However, the qualifying expenses exclude costs such as clothing, healthcare, vacations, life insurance, transportation, and education.
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If a taxpayer receives some form of assistance in paying the household bills from a relative, non-relative, or government programs such as the Temporary Assistance for Needy Families, the taxpayer will still qualify if they paid at least half of the bills using their own savings or earnings. The taxpayer should not include funds from any of these secondary sources as funds they personally paid towards maintaining the household.
#2 Considered unmarried
A taxpayer qualifies as head of household is he/she was considered unmarried as of the last day of the year. The requirement fits taxpayers who are single, divorced, or legally separated. A married couple that lives in separate residences from July 1 to December 31st may still be considered unmarried.
The spouses must file separate taxes and still meet the other two requirements for filing as head of household. If the reason for living in separate residences is a temporary circumstance such as medical treatments, college attendance, or military service, the spouses are considered married during the tax year and cannot claim the head of household filing status.
#3 Have a qualifying child or relative
A qualifying child or relative must have lived in the taxpayer’s home for more than half the year. The taxpayer should also provide at least 50% of the maintenance costs for the dependent. Persons who qualify for this relationship include a child, stepchild, foster child, adopted child, or descendant of any of those who are dependents under qualifying children rules.
Under the qualifying relative rule, you can claim your father, mother, brother, sister, niece, nephew, or either of the grandparents. The list of qualifying persons is contained in Table 4 of Publication 501 of the IRS.
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The IRS has a special rule if the qualifying relative is a parent. The tax agency allows the taxpayer to file as the head of household if the parent does not live with them, but the taxpayer pays more than half of the keeping cost of the main home for the whole year for the parents.
In addition, if the parents live in a rest home for the elderly and the taxpayer pays more than half of the cost of keeping the parents in the home, the taxpayer qualifies to file as the head of household.
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Qualifying dependent
If your dependent does not meet the criteria to be a qualifying child, you may still qualify to file as head of household. The following relatives are considered qualifying dependents for the head of household filing status as long as you provided more than half of her financial support and she lived with you for more than half of the year:
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Your biological or adopted child, stepchild, foster child, sibling, step sibling, half sibling or a descendant (child, grandchild, great grandchild, etc.) of one of these relatives who is permanently and totally disabled, even if he or she does not meet the age requirements to be a qualifying child.
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Your mother or father.
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Your stepfather, stepmother, niece, nephew, a sibling of one of your parents, or your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law or sister-in-law.
Even if your father or mother did not live with you for more than half of the tax year, you may still qualify to file as head of household. If you paid for more than half of the living expenses for your parent's main home throughout the entire tax year and you are eligible to claim them as a dependent, then you may file as head of household.
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Advantages of Filing as Head of Household
Filing federal income taxes as head of household offers more benefits, as compared to filing taxes as a single person, or married couples filing taxes separately.
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#1 Lower tax bracket
The first benefit is that the head of households falls in a lower tax bracket. For example, a 15% tax rate applies to taxpayers with a gross income of $9,326 to $37,950. When filing as head of household, the 15% tax rate applies to taxpayers with an income of up to $50,800.
#2 Higher standard deductions
Taxpayers who file as head of household also benefit from a higher standard deduction when filing taxes. Standard deductions reduce the taxable income for the year, which can lower the amount of taxes due. For example, in the 2017 tax year, a married couple filing separately could claim up to $6,350, while taxpayers filing as head of household get up to $9,350 in standard deductions. It brings a difference of about $3,000 in favor of the taxpayer filing as head of household.
Married Filing Jointly vs. Filing Separately
When using married filing jointly status, your total combined tax liability is often lower than the sum of spouses' individual tax liabilities, if they were filing separately. This is so because the standard deduction may be higher, and married filing jointly status may qualify for other tax benefits that don't apply to the other filing statuses.
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A joint tax return will often provide a bigger tax refund or a lower tax liability. However, this is not always the case. A couple may want to investigate their options by calculating the refund or balance due for filing jointly and separately and use the one that provides the biggest refund or the lowest tax liability.
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You can use the married filing jointly filing status if both of the following statements are true:
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You were married on the last day of the tax year. In other words, if you were married on Dec. 31, then you are considered to have been married all year. If you were unmarried, divorced, or legally separated (according to state law) on Dec. 31, then you are considered unmarried for the year. There is an exception to this rule for the death of a spouse.
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You and your spouse both agree to file a joint tax return.
Also, if you were not divorced or legally separated on Dec. 31, you are considered unmarried if all of the following apply:
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You lived apart from your spouse for the last six months of the tax year. (not including temporary absences like business, medical care, school, or military service).
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You file a separate tax return from your spouse.
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You paid over half the cost of keeping up your home during the tax year.
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Your home was the main home of your child, stepchild, or foster child for more than half of the tax year.
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What Is Married Filing Separately?
Married filing separately refers to a tax status used by married couples who choose to record their respective incomes, exemptions, and deductions on separate tax returns. There is a potential tax advantage to filing separately—when one spouse has significant medical expenses or miscellaneous itemized deductions, or when both spouses have about the same amount of income.
Key Takeaways:
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Married filing separately is a tax status used by married couples who choose to record their incomes, exemptions, and deductions on separate tax returns.
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Filing separately may keep a couple in a lower tax bracket and, therefore, keep each individual's tax liability at bay.
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If one spouse itemizes deductions, the other should as well.
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Although couples may benefit from filing separately, they may not be able to take advantage of certain tax benefits including credits geared to couples who file jointly.
Understanding Married Filing Separately
The Internal Revenue Service (IRS) gives taxpayers five different tax filing status options when they submit their annual tax returns: Single, married filing jointly, married filing separate, head of household, or qualifying widow(er). Anyone who files as married filing separately—or married filing jointly—must be married as of the end of the tax year. So someone who files as married on Apr. 15, 2022 should have been married no later than Dec. 31, 2022. Even though the couple files separately, the IRS requires taxpayers to include their spouse's information on their returns.
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Using the married filing separately status may be appealing and have financial advantages to certain couples. Combining their incomes and filing jointly may push them into a higher tax bracket and, therefore, increase their tax bill. Filing separately may keep a couple's tax liability at bay.
Although there are financial advantages to filing separately, couples miss out on certain tax credits meant for couples who file jointly.
According to the IRS, if you and your spouse file separate returns and one of you itemizes deductions, the other spouse will have a standard deduction of zero. Therefore, the other spouse should also itemize deductions. Note that beginning in tax year 2018, the standard deduction rises substantially—to $12,000 for individuals and $24,000 for married couples filing jointly. As a result of this change, one spouse must have significant miscellaneous deductions or medical expenses in order for the couple to gain any advantage from filing separately.
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Special Considerations
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Married filing jointly offers the most tax savings, especially when the spouses have different income levels. This means if you use the married filing separately status, you are unable to take advantage of a number of potentially valuable tax breaks. Some important breaks include:
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1. Child and Dependent Care Credit: This is a nonrefundable tax credit used by taxpayers to claim unreimbursed childcare expenses. Childcare
can include fees paid for babysitters, day care, summer camps—provided they aren't overnight—and other care providers for children under
the age of 13 or for anyone who cares for dependents who have a different ability.
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2. Hope Credit: This nonrefundable credit is available to parents who file jointly and whose modified adjusted gross income (MAGI) is $160,000 or less. It allows a credit of $2,500 toward tuition of a student who has not yet completed four years of college. This credit was available for taxpayers filing up to the 2009 tax year.
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3. American Opportunity Tax Credit (AOTC): Introduced in 2009, the AOTC also requires that couples filing jointly have a MAGI of no more than $160,000for a full credit. Couples who make between $160,000 and $180,000 can apply for a partial ATOC, while those who make more than $180,000 do not qualify. Couples can save as much as $2,500 on qualified educational expenses for students who attend an approved post-secondary institution for the first four years
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4. Lifetime Learning Credits: Parents can lower their tax bills by claiming the amount spent on tuition on a dollar-for-dollar basis by as much as $2,000. Qualifying tuition includes undergraduate, graduate or professional degree courses. As of 2019, the income for couples filing jointly must not exceed $134,000.
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As a couple who files joint tax returns, you can also as well as deductions for your contributions to a Traditional IRA and for any expenses related to the adoption of a qualifying child.
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Benefits of Married Filing Separately
Tax bills aside, there is one scenario in which married filing separately may be especially wise. If you don’t want to be liable for your spouse’s taxes, consider filing separately. For instance, if you know—or even suspect—your spouse is hiding income or claiming deductions or credits falsely, it may be wise to file separately.
Signing a joint return means both spouses are responsible for the accuracy of the return, and for any tax liabilities or penalties that may apply. By only signing your own return, you are only responsible for the accuracy of your own information, and for any tax liability and penalties that may ensue.
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What Is a Qualifying Widow/Widower?
The federal qualifying widow or widower tax filing status is available for two years for widows and widowers (surviving spouses) with dependents after their spouse's death. While the surviving spouse cannot continue to claim an exemption for the deceased spouse, they may file jointly with the deceased spouse for the tax year in which the spouse has died, and they can claim the standard deduction for a married couple filing jointly. For the next two tax years, the surviving spouse can file as a qualifying widow or widower if he or she maintains a household for the couple’s dependent children.
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Key Takeaways:
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Qualifying widow/widower filing status applies to surviving spouses with dependents.
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This allows the surviving spouse to file taxes jointly with the deceased spouse.
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The qualifying widow/widower status applies the standard deduction for a married couple filing jointly.
Understanding Qualifying Widow/Widower
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The qualifying widow or widower tax filing status is not available in the year of the spouse's death. To qualify, the spouse must have qualified for the married filing jointly status in the year of the spouse's death. Additional IRS requirements include:
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The taxpayer may not remarry.
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A qualifying taxpayer must claim a qualifying dependent. Qualifying dependents are the spouse's children, stepchildren, or adopted children. The IRS does not allow foster children to qualify.
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The qualifying dependent must live in the qualifying widow or widower's home for the full year. Temporary absences due to vacation, education, medical treatment, military service, or business activities are acceptable, as long as it is “reasonable to assume that the absent person will return to the home after the temporary absence” and the home is kept up during the absence.
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The surviving spouse has paid over one-half the costs associated with maintaining the home. Expenses include the mortgage or rent payments, property taxes, utilities, and groceries
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Advantages of Qualifying Widow/Widower
An individual may pay less in federal income taxes when filing as a qualifying widow or widower. The qualifying widow or widower can enjoy the same standard deduction amount as married couples filing jointly, and, as of 2019, qualifying widows and widowers enjoy the same tax bracket as married couples filing jointly. This gives widowed spouses two years to transition financially to the higher tax burden of a single, unmarried filer. For example, if the deceased spouse passed away in 2020, the surviving spouse can use the qualifying widow or widower status to enjoy married filing jointly standard deductions and tax brackets for the tax years 2021 and 2022.
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Lower taxes are especially helpful when the surviving spouse is paying funeral costs, final expenses, and general expenses associated with maintaining a home and rearing child. The reduced tax burden makes it easier for a surviving spouse to continue to provide for his or her children, and to transition to a single, unmarried filer, or head of household status.
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In addition, if the qualifying dependent is born or dies during the year, a taxpayer may still file under the qualified widow or widower status. Again, they must have paid more than one-half the costs of maintaining the home during the child's life, or before the child's birth. Also, the child must have lived with the qualifying taxpayer during the year.
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