Q: Tax Playa, I'm confused. I live by myself, so that means I'm single. But aren't I also a head of household?
Karen, Providence RI
A: There are five filing statuses that you can choose from when paying taxes: single, married filing jointly, married filing separately, head of household, and qualifying widow(er). Despite the confusing names, everyone only qualifies for one status in any given year. Figuring out the rules and traps can sometimes be tricky.
For more information on this, consult IRS Publication 501, Exemptions, Standard Deduction, Filing Information.
The first step in determining your filing status is to see if you are married or unmarried for tax purposes. This comes down to your status on the last day of your tax year (December 31st for most people). If you are married on December 31st, you are considered married for the whole year. If you are unmarried on December 31st, you are considered unmarried for the whole year.
A decree of separation counts as being unmarried. If your spouse dies during the year, that counts as married.
1. Single. Think single, childless people living on their own. If you are unmarried on December 31st and you do not qualify for any other status, you are single.
2. Head of Household. Think single parents. In order to be considered a head of household (which has wider tax brackets and a larger standard deduction than singles), you must meet all of the following conditions:
- You are unmarried on December 31st
- You paid more than half of the cost of keeping up a home
- A "qualifying person" lived with you for more than half the year
What is a "qualifying person?" This can be any of the following:
- A qualifying child (must be a relative, a minor/under 24 if a student, live with you for more than half the year, and provide a majority of their financial support). This child does not have to be a dependent of yours.
- A qualifying relative who is your father or mother. This relative must be your dependent. The parent does not have to live with you to qualify.
- A qualifying relative who is not your father or mother. This relative must be your dependent, and they must live with you for a majority of the year.
You can be considered unmarried for tax purposes while still being married legally and claim the head of household status only if you meet all of the following conditions:
- You file a separate return from your spouse
- You pay more the half the cost of maintaining a home
- Your spouse did not live in your home for the last half of the year
- Your home was the main home for a majority of the year of a qualifying child for whom you could claim an exemption
3. Qualifying Widow(er). The year your spouse dies, you can still claim married filing jointly. As of December 31st of the year of death, you are considered single. If you have a dependent child, you can claim qualifying widow(er) status for two tax years after the death of your spouse. The brackets and standard deduction for this status are the same as married filing jointly.
1. Married Filing Jointly. If you are married on December 31st, you must file as married. The default is to file as married filing jointly. It is generally advantageous to file as married filing jointly instead of married filing separately (see the disadvantages below). All income, adjustments, deductions, and exemptions are pooled together on one, combined return. The brackets are double that for singles up until about $100,000 of gross income, and then become less generous than double. The standard deduction is double that of singles.
2. Married Filing Separately. You may choose to have each spouse file their own taxes separately. This is usually a bad idea. Brackets, threshold phaseouts, etc. are usually half that of married filing jointly (or worse).
Below are some examples of how married filing separately is disadvantaged to married filing jointly:
- Your tax rate generally will be higher than it would be on a joint return.
- Your exemption amount for figuring the alternative minimum tax will be half that allowed to a joint return filer.
- You cannot take the credit for child and dependent care expenses in most cases, and the amount that you can exclude from income under an employer's dependent care assistance program is limited to $2,500 (instead of $5,000 if you filed a joint return).
- You cannot take the earned income credit.
- You cannot take the exclusion or credit for adoption expenses in most cases.
- You cannot take the education credits (the Hope credit and the lifetime learning credit), the deduction for student loan interest, or the tuition and fees deduction.
- You cannot exclude any interest income from qualified U.S. savings bonds that you used for higher education expenses.
- If you lived with your spouse at any time during the tax year, you cannot claim the credit for the elderly or the disabled, you will have to include in income more (up to 85%) of any Social Security or equivalent railroad retirement benefits you received, and you cannot roll over amounts from a traditional IRA into a Roth IRA.
- The following credits and deductions are reduced at income levels that are half of those for a joint return: the child tax credit, the retirement savings contributions credit, itemized deductions, and the deduction for personal exemptions.
- Your capital loss deduction limit is $1,500 (instead of $3,000 if you filed a joint return).
- If your spouse itemizes deductions, you cannot claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.
There are some quirky examples of how married filing separately would be advantageous to a couple, but these are few and far between,