December 31 means more than just New Year’s Eve celebrations. For tax purposes, it also affects the tax return filing status that will be checked on your tax return for the year. The filing status is important as it determines: filing requirements, standard deduction, eligibility for certain tax credits, and ultimately the tax tables you’ll use to calculate the income tax.
When you file your return, there are five filing options to choose from (some depend on whether you’re married or unmarried on December 31). More than one filing status may apply, and you can use the one that saves the most tax.
Here are the income tax filing status options:
- Single – This status is generally used if you’re unmarried, divorced or legally separated under a divorce or separate maintenance decree (state law governs).
- Married filing jointly – If you’re married, you can file a joint tax return with your spouse. If your spouse passes away, you can generally file a joint return for that year.
- Married filing separately – As an alternative to filing jointly, married couples can choose to file separate tax returns. In some cases, this may result in less tax owed (be wary of this filing status if you live in a community/marital property state like Wisconsin).
- Head of household – Certain unmarried taxpayers may qualify to use this status and potentially pay less tax. See below for special rules that apply.
- Qualifying widow(er) with a dependent child – This may be used if your spouse died during one of the previous two years and you have a dependent child. Other conditions also apply.
Head of household status
Head of household status is generally more favorable than filing as a single taxpayer. To qualify, you must “maintain a household” that, for more than half the year, is the principal home of a “qualifying child” or other relative that you can claim as your dependent.
A “qualifying child” is defined as someone who:
- Lives in your home for more than half the year,
- Is your child, stepchild, foster child, sibling, stepsibling or a descendant of any of these,
- Is under 19 years old or a student under age 24, and
- Doesn’t provide over half of his or her own support for the year.
Different rules may apply if a child’s parents are divorced. Also, a child isn’t a “qualifying child” if he or she is married and files jointly or isn’t a U.S. citizen or resident.
Maintaining a household
For head of household filing status, you’re considered to maintain a household if you live in it for the tax year and pay more than half the cost of running it. This includes property taxes, mortgage interest, rent, utilities, property insurance, repairs, upkeep, and food consumed in the home. Don’t include medical care, clothing, education, life insurance or transportation.
Under a special rule, you can also qualify as head of household if you maintain a home for a parent of yours even if you don’t live with this parent. To qualify, you must be able to claim the parent as your dependent.
Marital status (when married can also mean that you are not married!)
You must generally be unmarried to claim head of household status. If you’re married, you must generally file as either married filing jointly or married filing separately, not as head of household. However, if you’ve lived apart from your spouse for the last six months of the year and a qualifying child lives with you and you “maintain” the household, you’re treated as unmarried. In this case, you may be able to qualify as head of household.
Qualifying widow(er) with a dependent child status
If you are unmarried because your spouse died within the year, you can still file jointly or separately as a married person for that year, whether or not you have a dependent. After the initial year of death, if you are still unmarried and have a dependent child, then you can file under the Qualifying Widow/Widower (“QW”) filing status.
This filing status will allow you to continue benefiting from the same standard deduction and the same tax rates as for married couples filing jointly. You can claim QW filing status for a total of two years. If you are still unmarried after those two years, your filing status changes to single or head of household.
Please contact your Wegner CPAs tax professional if you have questions about which filing status is best for you.