This post was updated April 1, 2021.
You're married. You got married on Dec. 31. You're a parent. You take care of an aging parent. You're a single dad. You're divorced. You got divorced on Dec. 31.
All of these personal situations can affect your tax filing status. So getting it right on your tax return is critical.
Why does filing status matter so much?
It determines the amount of standard deduction you can claim. It is used to establish eligibility for certain tax credits. It can affect the amount of tax you owe for the year. It may even determine if you must file a tax return.
That's why it's so important to pick the proper status.
I say pick, and in a few cases, you might qualify for more than one filing status. If that happens, then choose the one that allows you to pay the least amount of tax.
But in most taxpayer situations, filing status is determined by standards established in the tax code.
Here are the five tax filing statuses currently in effect:
- Single — This status normally applies if you aren't married. Single filing status generally applies if you've never been married or are divorced or legally separated according to state law. Note, your marital status on the last day of the year is your marital status for the entire year, so if your divorce became final on Dec. 31, then in the Internal Revenue Service's eyes, you were single for all of that tax year.
- Married Filing Jointly — If you're married, you and your spouse can file a joint tax return. This filing status is used by most married couples because it offers more tax breaks than the other married filing option (discussed in #3) allows. Again, the last-day-of-the-year rule applies here, so if you tied the knot on Dec. 31, then the IRS considers you married for the full year. And if your spouse passes away, you usually can still file a joint return for the year that he or she died.
The IRS likes joint returns. The two-on-one 1040 means one less form to process. Couples tend to like it, too, for the similar shared work reasons.
But note that when you file jointly, including both spouses' income on the same return, each party can be held responsible for any tax bill (and penalty and interest) that the IRS might determine is due. This situation, known as joint and several liability, applies even if only one spouse earned all the income.
- Married Filing Separately — Rather than file jointly, a married couple can choose for each spouse to file a separate tax return. This may benefit you if it results in one spouse owing less tax than if you file a joint tax return. This could be the case where one spouse had lots of medical expenses, but the couple's combined income set a 7.5 percent deduction threshold that was too high to meet.
Sending separate returns also is a good idea if one spouse has some concerns about claims his or her partner wants to make on a 1040. Remember that joint and several liability issue.
If you think filing separately is warranted, particularly when the reason is tax savings instead of claim concerns, you should prepare your taxes both ways to get a good comparison of the results.
- Head of Household — This filing status applies in most cases to folks who are not married and take care of the needs of dependents. You must meet the special dependency rules, most notably that you paid during the tax year more than half the cost of keeping up a home for yourself and a qualifying dependent. In some cases, married persons who have not lived with their spouses may qualify for Head of Household (HoH) status.
HoH's biggest immediate tax break is that it provides a larger standard deduction than the single filing status. In addition, the income brackets and applicable tax rates for HoH filers usually are more favorable than those in the single or married filing separately categories.
- Qualifying Widow or Widower with Dependent Child — This status may apply to you if you recently lost your spouse and you have a dependent child. As noted in the joint filing (#2) discussion, you can still file a joint return for the tax year in which your spouse died.
After that, though, if you are taking care of a dependent child you might be eligible to file as a qualifying widow or widower, which essentially provides the same benefits as the married joint filing status. The care rule is that your dependent child lived with you for the full tax year, during which you paid more than half the cost of keeping up the home.
This surviving spouse filing option, however, is not unlimited. It's available for just the two years following the year a spouse dies.
If you hire a tax professional, s/he will help your select your correct and most tax advantageous filing status.
If you use tax software, it should walk you through your personal situation to determine which filing status applies.
Either way, choose your filing status carefully and correctly. It could make a big tax difference.
You also might find these items of interest:
- EITC claiming option: use 2019 or 2020 income
- Adoption tax credit, other family-related 2020 inflation amounts
- Father's Day child tax credit tip, along with other tax breaks for all parents