What’s Your Status?

            Choosing a filing status for your tax return should be a simple task. Sometimes, however, the rules can be tricky. Generally speaking, your marital status on the last day of the year determines your status for the entire year. Of the five status options, filing as single is the least complicated. If you are unmarried, or if you are legally separated from your spouse under your state law, and you do not qualify for any other filing status, then your status is single.

            If you are married, you and your spouse may file a joint return or separate returns. You are considered married for the whole year if on the last day of your tax year you and your spouse are either: married and living together as husband and wife, living together in a common law marriage that is recognized in the state where you reside or in the state the marriage began, married and living separately but are not legally separated under a decree of divorce or separate maintenance decree according to state law, or separated under a decree of divorce that is not yet final. For purposes of filing status, you are not yet considered divorced if the decree is not yet final.

If you are married and choose to file separately, specific rules apply. Usually, these rules will cause a higher tax rate and half of the exemption amount for alternative minimum tax. The rules also may include denial of the credits for dependent care expenses, adoption expenses, and the earned income credit. In addition, the child tax credit, the retirement savings contributions credit, itemized deductions, and the deduction for personal exemptions are reduced at income levels that are one half of those for a joint return. Even though these limitations apply, some couples choose to file separately as to have individual responsibility for the tax due and accuracy of the information in a situation in which you are married, but legally separated.  In addition, in certain states it is advantageous for married individuals to file separately.  The state tax savings often offsets the federal tax cost.

      On the other hand, if you are married and choose to file a joint return, the limitations of the previously listed credits do not apply. Both spouses must be sure to use the same accounting period on the return, and include all income, exemptions, and deductions. Both taxpayers may be held jointly and individually responsible for all tax due, and any interest and penalty due on a joint return no matter which spouse earned the income.

            If you are unmarried, or considered unmarried, you meet one of the stipulations for filing as Head of Household. To be considered unmarried, you must file a separate return, pay more than half the cost of keeping up your home for the year, and live separately from your spouse for the last six months of the year. Moreover, your home must be the main home of your child, stepchild, or eligible relative for more than half the year, and you must be able to claim the exemption for that child or qualifying relative.  

 If you are unmarried or considered unmarried on the last day of the year, you must pay more than 50% of the costs of maintaining the home for the year, and a qualifying person must live with you for more than half of the year to file as head of household. As head of household, you usually will have a lower tax rate than filing as single or married filing separately.

Filing as a qualifying widow or widower with dependent child is the final available filing status. To be eligible to use this status, you must have been entitled to file a joint return with your spouse for the year your spouse died, you did not remarry in the two years following the year your spouse died, you have a child, stepchild, or adopted child for whom you can claim a dependency exception, and you paid more than half the cost of maintaining a household that was the main home for you and the dependent child for the entire year.

With all of the specific rules that come along with choosing a filing status, the seemingly straightforward option can certainly take some thought.