One of the most common mistakes taxpayers make is selecting the wrong filing status – and a short lesson on filing statuses could help ensure you pay only what you owe in taxes and get back the tax refund you’re due.
If it has been a while since you filled out a tax form using a pen, you might have forgotten about the tax rate schedule. This schedule outlines how taxes are applied based on filing status. All the tax brackets range from 10-35 percent, but the points at which you move from one to the next vary based on your filing status. If you select the wrong filing status, you very likely will not be taxed accurately because the moves to higher tax brackets are prompted by different amounts for each filing status. Also, because the amount of the standard deduction is different for each filing status, selecting the wrong one could result in paying taxes on more income than you’re required.
So, selecting the correct status is very, very important. To help you determine which is right for you, following are the IRS filing statuses with some information about each one.
Those who are not married may file as single. Your marital status on Dec. 31 of the year for which you are filing your income tax return determines your filing status.
This means taxpayers who are not divorced on Dec. 31 must continue to use one of the filing statuses for married couples, which are generally married filing jointly and married filing separately. In some cases, married and single individuals may be able to file as head of household.
Married filing jointly
Generally, married taxpayers file a joint income tax return because of the added tax benefits, including eligibility for certain credits. Also, if your spouse died in the tax year for which you are filing, you can likely file as married filing jointly.
Married filing separately
Filing separately can sometimes lower a tax bill. For example, if one of the spouses has low income and high medical bills, it could work in their favor to file separately to claim these expenses as itemized deductions. This is because their spouse’s income could make it difficult to reach the threshold for claiming medical expenses. These expenses must exceed 7.5 percent of adjusted gross income to be claimed as itemized deductions and then only the amount that exceeds 7.5 percent of adjusted gross income is allowed as a tax deduction.
Head of household with a qualifying person
Married and single taxpayers can sometimes qualify to file as head of household when these conditions are met:
- You are either single or considered unmarried for tax purposes
- Married taxpayers are considered single for tax purposes if they have not lived in the same home as their spouse for at least the last six months of the year
- Paid more than half the cost of keeping up your home
- Had a qualifying dependent living in your home more than half of the year
- If the qualifying dependent is your parent, the requirement to have lived with you is waived – which could really help out those in the sandwich generation.
Divorced taxpayers who do not qualify to use the head of household status will file as single.
Qualifying widow(er) with a dependent child
For up to two years after a spouse’s death, the widow(er) may continue to use the married filing jointly tax rate by filing as a qualified widow(er) with a dependent child, as long as the taxpayer hasn’t remarried.
No, “it’s complicated” isn’t a filing status, but certain big life changes can make it difficult to determine your correct filing status. In fact, some people find themselves eligible for more than one status. A common example is when taxpayers with children are in the process of getting a divorce or have separated.
“Depending on the specifics of their situation, parents who are divorcing or separated may be eligible to file under three filing statuses: married filing jointly, married filing separately or head of household with qualifying person,” said Lindsey Buchholz, tax analyst at The Tax Institute at H&R Block. “Another time this would generally apply would be when single taxpayers with a child, or other qualifying relative, may be able to file as either single or head of household.”
Guessing what your filing status is or assuming it is the same as last year could cost you now or catch up to you and cost you later, especially if your marital status has changed. If you have questions about your filing status, or any other income tax issue, contact a tax professional.