Posted by Elliot Kravitz, ATP

Understand Your Filing Status

Understand Your Filing Status

The filing status of a taxpayer depends on individual circumstances. Are you married or single? Do you have dependents? Identifying the correct filing condition is essential, as it determines the tax rates you will pay and the standard deduction that applies to your income. This can significantly impact the amount owed to the IRS at the end of the year or the amount owed and refunded due to the IRS.

In some cases, the choice of poor filing status may lead to an audit.

The IRS offers five filing statuses to choose from, but you can only use one when filing your tax return: 

  • Head of households

  • Married filing jointly

  • Married filing separately 

  • Qualified widow(er)s

  • Single

Why your filing status matters a lot

Your standard deduction for the tax year 2020 is $12,400 if you are single and you do not qualify for head of household status. This deduction increases to $12,550 for the 2021 fiscal year.

The standard deduction increases to $18,650 in 2020 for heads of households and increases to $18,800 in 2021. This is $6,250 more than you can deduct from your taxable income in 2020 than if you have to file using the single status.

The standard return deductions for 2020 that you will send in 2021 are broken down as follows: 

  • $12,400 for Single

  • $12,400 for married filing jointly

  • $18,650 for the head of households

  • $24,800 for married filing jointly 

  • $24,800 for qualifying widow (er)

Qualifying widower is entitled to the same standard deduction as married taxpayers who file a joint claim but can only do so for two years after their spouse's death.

As for tax rates, let's take the 22% range as an example: 

  • Individual taxpayers pay this tax for the portion of their income that exceeds $40,125 in 2020, up to $85,525.

  • These figures doubled for married taxpayers who file jointly: $80,250 up to $171,050 in the fiscal year of 2020.

  • The 22% tax starts with an income of $53,701 for the head of household filers, up to an income of $85,500, again a significant difference.

So, yes, marital status has a major impact on your tax obligations. Depending on the status you're eligible for, you can earn more before paying a higher percentage in taxes on your top dollar, and you can further reduce your total gross income so that you are only taxed on your remaining balance.

Determining marital status

The fundamental day for determining marital status within your filing status is December 31. All states depend on whether you are considered married or single on that specific date. You are considered married for tax purposes if you are legally married on the last day of the year and live with your spouse. But you are considered married even if you are separated from your spouse by agreement and not by court order.

You are not considered married if you and your spouse are separated by court order, but you are if you are living apart by agreement.

Married filing jointly status

You can choose to file an income tax return with your spouse if you are married. A joint return combines income and deductions. You and your spouse must agree to submit a joint declaration, and both must sign it.

Marriage filing jointly offers greater tax advantages than married filing separately. But it also means that you and your spouse are "jointly responsible" for the joint declaration - each of you is individually responsible for the correctness of the declaration and for paying the taxes owed.

In other words, the IRS may personally charge you the full amount if you find that you and your spouse owe $15,000 in combined income tax, even though you earned only 15% of the money that generated these taxes.

Married filing separately 

You and your spouse can also file separate tax returns if you are married, but married filing separately receive the least favorable tax treatment under IRS rules.

Spouses who choose to file separately will not be eligible for various tax benefits and credits, including the American Opportunity Income Tax Credit or Education Credit. Child tax credit and child care and dependent care credit are also affected.

However, the married filing status offers a way to establish a separate tax debt from your spouse. A couple may want to file a separate return because:

  • A spouse suspects that the joint return may not be correct.

  • One of the spouses does not want to pay all the taxes listed in the joint return.

  • One spouse owes taxes while the other will receive a refund.

  • One spouse wants to file an income tax, but the other does not.

  • Spouses are separated but have not yet divorced and want to keep their finances as separate as possible.

You still need to collaborate and share tax information with your spouse if they file separately, and you will need to coordinate who can claim your children as dependent if you have any. Spouses making separate returns must take the standard deduction, or both must file their deductions; your statements must "match" in this regard.

Joint filing can result in lower federal taxes in many cases, but a separate filing creates separate tax obligations for each spouse, which can minimize tax risks.

Single Filing Status

The single filing status is used by people who did not get married on the last day of the year. You are not married or divorced, your spouse died more than two years ago, and you haven't remarried, or you are separated by court order. You don't have any dependents or at least no one who can claim you for head of household or the qualifying widower.

The single status is essentially a general bracket for those who do not qualify for one of the other four statuses.

Head of Household Status

You may be eligible for HOH status if you are not married or considered single on the last day of the tax year and care for a dependent, such as your child, who has lived with you for more than six years. 

Married persons may be "considered unmarried" to enjoy the status of head of household, even if, in certain circumstances, they are not yet legally divorced or legally separated. You may be eligible if you and your spouse have never lived together in the last six months of the fiscal year, not even a day after June 30, provided you meet the other conditions.

Temporary absences don't matter, for example, if your spouse lives elsewhere due to work or business reasons because your spouse probably intends to return to your home sooner or later.

Single taxpayers who can claim a dependent must pay more than half the cost of maintaining the residence during the tax year to qualify as head of household, but the IRS offers some flexibility. If your dependent is a close relative, such as your aged parents, they don't have to live with you, even if you have to pay more than half the cost of maintaining their home and be able to claim them as an employee. Dependents other than non-children must live with you year-round.

A qualifying widow(er) with dependent child filing status

You can still file a joint or separate return as a married taxpayer for the fiscal year in which your spouse died, even if you have no dependents. Then you can apply for eligible widow(er) status if you are not yet married and have a dependent child after the first year of death.

This status will allow you to continue to benefit from the same tax deductions and standard rates for couples who file jointly. You can apply for marital status as a qualified widower for a total of two years. Your status changes to single or head of household if you are not yet married after two years, and you will lose eligibility for this status if you remarry before two years elapse.

You must have at least 1 dependent child to benefit from this filing status.

Bottom Line

The IRS is ready to help if you are still unsure of your filing status. It provides an interactive tool on its website that will tell you how to file. You'll need some information handy, such as how much you paid to keep your home for the year, and the tool only applies to U.S. citizens and foreign residents. It takes about five minutes. Alternatively, you can talk to a tax professional like ELLIOT KRAVITZ, ATP, to help you decide which filing status is best for you.



Elliot Kravitz, ATP
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