Tax law distinguishes filing status because filing requirements, certain credits and deductions, tax brackets, and the standard deduction depend on the filing status. There are 5 filing statuses:
- Head of Household
- Married Filing Jointly,
- Married Filing Separately,
- Qualifying Widow(er) with Dependent Child.
Filing status determines what standard deduction you may take and the boundaries of the income tax brackets for which your taxable income is determined. Because the 15% tax bracket depends on filing status, filing status also determines the tax rate on qualified dividends and capital gains, since if the taxpayer's tax bracket is 15% or less, then there is no tax. This tax rate also applies for the alternative minimum tax calculation.
|Filing Status||Age at End of Year||Income|
|Head of household||< 65||$12,500|
|Married filing jointly||Both spouses < 65||$19,500|
|One spouse ≥ 65||$20,650|
|Both spouses ≥ 65||$21,800|
|Married filing separately||any age||$3,800|
|Qualifying widow(er) with dependent child||< 65||$15,700|
|Head of household||< 65||$12,200|
|Married filing jointly||Both spouses < 65||$19,000|
|One spouse ≥ 65||$20,150|
|Both spouses ≥ 65||$21,300|
|Married filing separately||any age||$3,700|
|Qualifying widow(er) with dependent child||< 65||$15,300|
Generally, the filing requirement income thresholds are generally equal to the personal exemption plus the basic standard deduction, and, if applicable, the additional standard deduction, although there are exceptions. For instance, spouses filing separately must report income if it is greater than their personal exemption. If you are eligible for more than one filing status, then it makes sense to choose the filing status that yields the lowest tax.
|Head of Household||$12,400||$47,350||$122,300||$198,050||$388,350|
|Married Filing Jointly|
Qualifying Surviving Spouse
(Note: Married Filing Separately = 1/2 of Joint Rate)
|Marriage Penalty: Multiple of Single Brackett|
(No penalty=2, maximum penalty=1)
|Head of Household||$12,150||$46,250||$119,400||$193,350||$379,150|
|Married Filing Separately||$8,500||$34,500||$69,675||$106,150||$189,575|
|Married Filing Jointly,|
Qualifying Surviving Spouse
Tax Bracket as a
Multiple of the Single Bracket
|No penalty: 2||1.67||1.22||1||1|
Note that the tax bracket for Married Filing Separately is always 1/2 of the Married Filing Jointly bracket. For the 10% and 15% brackets, there is no marriage penalty, since the Married Filing Separately bracket is the same as the single bracket and Married Filing Jointly is twice that amount. However, at higher brackets, there is a marriage penalty because the higher brackets start at lower income levels for married people than what would be implied by the corresponding Single bracket. In fact, the 33% and 35% tax brackets start at the same income levels for both Single and Married Filing Jointly statuses.
State law determines single status but it is sometimes modified by federal law. Generally, single means unmarried, divorced or legally separated at the end of the tax year. It also includes spouses of same-sex marriages, since federal law only recognizes marriages between 2 people of the opposite sex. Taxpayers filing as single or as married filing separately pay the highest tax rates.
Head of Household Status
The head of household status can be claimed if you're unmarried, or are considered unmarried, at the end of the year, you paid more than half of the expenses for maintaining a household, provided more than 50% support for child, parent, or other qualifying relative, and him except for a parent, lived with you for more than half the year, and you were a United States citizen or resident for the entire year. A qualifying child or relative must be legally related to you. Hence, boyfriends, girlfriends, or their children do not qualify you for head of household status even if they live with you and you provide more than half of their support.
You are unmarried if you are legally separated or divorced under a final court decree by the end of the year. If you are married but lived separately from your spouse during the last 6 months of the tax year, not including temporary absences, then you are considered to be unmarried. You are also treated as unmarried if you are married to a nonresident alien and did not elect to file a joint return, or if your spouse is of the same sex, since same-sex marriages are not recognized under federal law.
In determining whether a child lives with you for more than half year, temporary absences, such as vacation or even staying with the other parent under a child pursuant to a child custody agreement does not count. If a dependent dies before the end of the tax year, head of household status can still be claimed if the taxpayer provided more than half of the cost of maintaining the household before the dependent's death.
Abandoned spouse rules allow a taxpayer who was abandoned by her spouse to file as head of household. Congress enacted these rules because otherwise the separated parent may be forced to use unfavorable tax rates if she has to file married filing separately. For an abandoned spouse to qualify as head of household, the following requirements must be satisfied:
- the taxpayer did not file a joint return;
- paid for more than half of household expenses during the last 6 months of the tax year;
- the taxpayer's spouse did not live in the home during the last 6 months of the tax year;
- the taxpayer's qualified dependent lived with the taxpayer for more than half the year; and
- the taxpayer can claim the child, stepchild, or adopted child as a dependent.
Married Filing Jointly or Separately
If one spouse earns all or most of the household income, a joint filing will save more on taxes. If earnings are more equal, then taxes should be calculated for both a joint filing and separate filing to determine which yields the lowest taxes. Although the tax brackets for married filing separately are lower for incomes above $34,500, filing separately allows larger amounts of medical expenses, casualty losses and miscellaneous deductions to be deducted because these deductions must exceed a certain percentage of adjusted gross income, which would be lower for a spouse filing separately, especially if they both earned substantial sums of money. However, a disadvantage of filing separately is that both spouses must either itemize deductions or claim the standard deduction.
Certain tax benefits are only available to joint filers, especially if one spouse has little or no income. For instance, the working spouse can claim an IRA deduction for a nonworking spouse. Although a couple filing separately can claim an IRA contribution, the phaseout limit for a married person filing separately is $10,000 of modified adjusted gross income (MAGI), which, for most individuals, is close to adjusted gross income. Since this is much less than what most people earn, filing separately effectively eliminates IRA deductions. For couples filing separately, the alternative minimum tax exemption is one half of the exemption available to joint filers. A spouse filing separately may not claim the credit for the elderly or the permanently disabled, the child and dependent care credit, the earned income credit, or educational credits.
A husband and wife may file a joint return only if their tax years begin on the same date, and they are not legally separated on the last day of the tax year, and neither is a nonresident alien during the tax year, unless the nonresident alien is willing to be taxed on his worldwide income and supply all the necessary information to determine tax liability. If a nonresident alien earns a considerable income outside of the United States, then the couple should not file a joint return, since the nonresidents global income will be subject to United States tax.
On the joint return, both spouses have liability for unpaid taxes plus interest and penalties. Joint liability may be avoided under innocent spouse rules if the other spouse is largely responsible for understating tax. If a spouse filed a joint return but is divorced or separated from the other spouse on the joint filing, then the spouse could petition the IRS for separation of liability treatment. A separation of liability request will also be necessary if the correct tax was reported but not paid.
Registered domestic partners or same-sex married couples are not considered married under federal law, so they cannot file joint returns. They must select the filing status as being either single or head of household, depending on which applies. However, a partner cannot be claimed as a dependent.
Community Property States
In community property states — Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin, and Alaska, if community property status was selected — all of the income earned by the spouses during their marriage is considered to be equally earned by each spouse. Therefore, if the spouses file separately, then they must divide their income by one half and claim each on their return. So if the wife makes $100,000 and the husband makes $50,000, then each spouse is considered to have earned $75,000, which must be reported on their tax returns.
Spouses can also own separate property, which is property that they acquired before marriage or received as a gift or inheritance. In most community property states, the income produced by separate property is separate income of the spouse that owns the property. However, in Idaho, Louisiana, Texas, and Wisconsin, the income produced by separate property is considered to be community property and, thus, must be apportioned half-and-half to each spouse.
If the couple is separated, then community income rules may not apply, since it may be difficult for one spouse to know the income of the other. In these cases, income will be attributed to the one that actually earns it if the following conditions apply:
- there was no transfer of funds between the 2 spouses except for child support payments;
- the individuals lived apart for the entire year; and
- they did not file a joint return.
Self-Employment Tax Tip
Save self-employment taxes for a spouse if:
- you live in a community-property state,
- you and your spouse are exclusive owners of an unincorporated business, and
- your combined income is greater than the social security contribution and benefit base per year.
Revenue Procedure 2002-69 allows you to file your joint return as a sole proprietorship, filing a single Schedule C for the business and paying the 12.4% Social Security tax on net profit up to the social security contribution and benefit base (2012: $110,100) instead of having to pay the tax on double that amount, which will yield a savings of 12.4% of the net profit amount over that, but less than double the social security contribution and benefit base, which is adjusted annually for inflation. For 2012, that would yield a maximum savings of 12.4% x $110,100 = $13,652.40 for any net profit ≥ $220,200 (= 2 x $110,100).
Joint Return Where One Spouse Is Deceased
Generally, a surviving spouse can file a joint return for 2 years after the death of her spouse, unless she remarries before the end of the tax year. A change of accounting period may also prevent a joint filing, if it results in a short tax year.
To file a joint return, the surviving spouse must file it with the executor or administrator of the decedent's estate unless:
- the decedent did not file a tax return for the tax year;
- no executor or personal representative was appointed; and
- no personal representative or executor was appointed as of the last day for filing the return of the surviving spouse, including any extensions.
A personal representative may disaffirm a joint return by filing a separate return for the decedent, but only if it is made within one year after the filing date, including extensions, of the return of the surviving spouse. The IRS will then modify the surviving spouse's tax returns accordingly.
Qualifying Widow(er) Status with Dependent Child
A qualifying widow(er) has a surviving spouse status. Joint return rates can be maintained for 2 years following the death of one spouse, if the surviving spouse maintains a household and provides more than one half of household expenses for a qualifying dependent child. If an executor or personal representative has been appointed for a deceased spouse, then the personal representative must agree to a joint filing; otherwise, the surviving spouse must file as married filing separately.
If your spouse died in 2009, 2010, or 2011, and you did not remarry before 2012, then you may file a joint return instead of an individual return, if you are otherwise entitled to file jointly, even if you did not do so. You can claim a child, stepchild, or adopted child, but not a foster child who lived with you during 2011 at which you paid over half the cost of maintaining of household expenses. The child must have lived with you for the entire year, however, not counting temporary absences. Note that this differs from head of household status in that a foster child is a qualifying dependent and that the residency requirement is only a half year rather than a full year.