Taxpayers in the United States have five potential filing status options when preparing their taxes. Filing status is a category that defines the form you will use when filing your taxes, and it is an important factor in determining your tax liability. Filing status is used to determine your standard deduction and any tax credits or deductions you may be eligible for.
Filing status is closely linked to marital status. Other factors that may influence how much you pay in taxes include your occupation and the number of minor children you support.
Your filing status is determined by state law and your status on the last day of the tax year. Internal Revenue Service Publication 501 describes these statuses.
Marital Status
State law determines whether you are married or legally separated under a divorce or separate maintenance agreement.
- If you are divorced by a final decree on the last day of the tax year, you are considered to be divorced for the entire year.
- If you obtain a divorce for the sole purpose of filing singly on your taxes and remarry after filing taxes, you and your spouse must file as married for both years.
- If your marriage is annulled (a determination that no marriage actually existed), even if you filed jointly in the past, you are considered to be single.
You are considered to be married for the entire tax year if any of the following are true on the last day of the tax year:
- You and your spouse are married and living together.
- You are together in a common-law marriage in a state that allows common-law marriages.
- You are married and living apart, but are not legally separated.
- You are separated by your divorce decree, but it is not finalized.
- If your spouse died during the tax year, you are considered to be married for the entire tax year.
Tax Filing Status Options
Single
If you are unmarried, divorced, widowed, or legally separated on the last day of the tax year, you would file single.
Single filers have lower income limits for most exemptions. If you are single, you may be able to file as a head of household or qualifying surviving spouse.
Married filing Jointly
Married partners can choose to file their taxes jointly. When filing jointly, you and your spouse agree to combine your income and deduct your allowable expenses. Married partners may file a joint return even if one partner did not earn any income.
Eligible married couples may choose to file jointly to benefit from the lower taxes associated with filing jointly when compared to the combined taxes of filing separately.
Married couples filing jointly may also qualify for higher deductions and other tax benefits that are not available to people filing under other tax statuses. To verify whether this is true in your case, consider completing the tax forms as both married filing jointly and married filing separately to see which gives you the lower tax obligation.
If you and your spouse file jointly, you and your spouse are equally responsible for paying any taxes due and any interest or penalties if the taxes were not paid on time. Married filing jointly may not be ideal for people who are concerned that their spouse will not file their taxes correctly or not pay taxes that are due.
Married Filing Separately
If you and your spouse do not plan to file jointly and you do not qualify for head of household status, you will file separately. Filing separately generally results in a higher tax obligation overall because the tax rate for married filing separately is higher than for married filing jointly, and the exemption amount is cut in half and divided between the two spouses.
Married filing separately may work to your benefit if one spouse has significantly higher income or deductions. For example, if one spouse has a lower income and higher medical bills than the other, they may qualify for more deductions if they file separately.
Married filing separately may be ideal for spouses who want to be responsible for their own tax returns. Many couples prefer to keep their taxes and finances separate.
Head of Household
You may qualify for head of household if you are unmarried or considered unmarried because you live apart from your spouse and meet the following criteria:
- Your spouse didn’t live in your home during the last six months of the year.
- You paid more than half the household expenses for the tax year.
- A qualifying person, such as a dependent child, stepchild, foster child, or other child, lived with you in your home for more than half the year. If your qualifying person is a parent, you may be eligible to file as a head of household, even if your parent did not live with you, as long as you pay more than half the cost of maintaining their home or place of residence.
If you may qualify as a head of household, it is worth considering because filing as head of household generally comes with a larger standard deduction and more favorable tax brackets than filing singly.
Qualifying Widow(er) with Dependent Child
A widow or widower with a dependent child may continue to receive the benefits associated with married filing jointly by filing as a qualified widow(er) with a dependent child for two years after their spouse’s death.
If a widow(er) remarries, they may no longer use this filing status.
If you are still unsure about which filing status is your best option, try the IRS “What’s my filing status?” tool to work through different scenarios. Consult with a financial planner to determine how your investment choices can impact your taxes.
Working with a wealth manager who uses a fee-only financial planning structure can ensure you make the best financial decisions for yourself and your loved ones. Ready to secure your financial future? Call us today at 866-395-1786 to get started.