Choosing the best Tax Filing Status

There are five filing statuses to choose from when filing your tax return: single, head of household, married filing separately, married filing jointly, and qualifying widow(er) with dependent child. It’s important that you choose the right one both to ensure the accuracy of your return and to minimize your tax bill. Here’s what you need to know about determining your tax filing status.

Choosing the best Tax Filing Status

Who qualifies for single status?

Taxpayers who are not legally married under their state’s laws qualify for single status. This includes individuals who have never been married, those who are divorced, those who are legally separated, and those who are in a relationship but are not legally married.

Who qualifies for head of household status?

Head of household is a special filing status for single taxpayers who have a dependent, often a child, under their care. To qualify, the taxpayer must pay more than half the costs of keeping up the home (rent, mortgage, maintenance), and the dependent must have lived with the taxpayer for more than half of the year. This status is commonly used by divorced parents and by parents who never married.

What is the benefit of head of household status?

Head of household status provides higher standard deductions and lower tax rates (via higher income limits for each bracket) than single status. Most notably, the Earned Income Tax Credit is available in significantly higher amounts and at higher levels of income for those filing as head of household than for those filing as single.

Do you have to claim a child as a dependent to qualify for head of household status?

Being able to claim an exemption for a dependent child is not a requirement for head of household status. A parent who has released the exemption to the other parent may still be qualified, and a parent who was granted the exemption may not be qualified.

Who qualifies for married status?

Taxpayers who are legally married under their state’s laws qualify to file as married filing jointly or married filing separately. This includes gay marriages in states that recognize gay marriage. Marital status is determined based on the couple’s status on the last day of the tax year.

Couples who marry during the year are eligible to file as married. Couples who finalize a divorce during the year are not. Couples who file for divorce but don’t finalize it before the end of the tax year must file as either married filing jointly or married filing separately.

Who qualifies for Qualifying Widow(er) with a dependent child?

This status may apply if your spouse died during the previous year and you have a dependent child. It allows you to retain the benefits of the Married Filing jointly status for two years following the death of a spouse but in order to qualify you must have a dependent child.

What is the difference between married filing jointly and married filing separately?

The tax filing status of married filing separately means the spouses submit two separate tax returns with their own income and deductions.

Married filing jointly means that the spouses file a single tax return with their combined incomes and deductions. The standard deductions and the income limits for each tax bracket are higher to account for the combined incomes of both spouses.

When spouses file jointly, they both share equal responsibility for the tax liability, as well as any errors or fraud, even if only one spouse actually handles the couple’s finances and taxes.

What is the marriage penalty or marriage tax?

Marriage penalty or marriage tax are phrases commonly used to describe the fact that a married couple’s taxes may be higher if they file jointly than if they file separately. There is no actual marriage tax, and whether taxes are actually higher depends on each couple’s income level and their available deductions and exemptions.

Married couples are free to choose the filing status that results in the lower tax burden, and they should calculate their taxes both ways each year because the more beneficial filing status could change from year to year.

Who gets the exemptions and deductions when filing as married filing separately?

For the dependent exemption, each child can only be claimed on one tax return when filing taxes. The parents can use the exemption on the return that will give them the greatest tax benefit. If they have multiple children, they can use all exemptions on one return, one exemption on each return, or any other combination as long as each child is only claimed once.

For deductions, both spouses must use the standard deductions or both spouses must itemize their deductions. If they choose to itemize their deductions, they can generally allocate the deductions as they see fit as long as the combined deductions on both of their returns do not exceed the amount of money they actually spent.