Understanding Tax Filing Status Options and Their Implications

How much have you thought about your tax filing status options? If you’re like most people, you might think it just boils down to whether you’re single or married—period. There’s not much more to the story, right?

In reality, there are five tax filing statuses, and in certain situations, you can be eligible for more than one, giving you the option to choose. What’s more, the choice you make can have several implications on what you pay in taxes. So, what are the different filing statuses and how do they relate to the rest of your tax return?

What Are the 5 Tax Filing Statuses?

First, let’s review what the five tax filing statuses are and then, more importantly, we’ll look at the affect your filing status has on your overall tax return.

Single

You’re Single in the eyes of the IRS if you were not married on December 31 of the year for which you’re filing. If you’ve never been married, this should be pretty straightforward. If you were married during part of the year, but were divorced on December 31 of the year, you still qualify as Single.

Head of Household

Declaring Head of Household status doesn’t have anything to do with who rules the roost at home. Rather, the Head of Household option applies to you if you’re unmarried and paid more than half of the cost of keeping up your home for the year, plus a few other criteria.

You must have at least one dependent, either a qualifying child or qualifying relative, for whom you provided more than half of their financial support:

  • A qualifying child must live with you for more than half of the year and be under 19 years old or under 24 if a student.

  • A qualifying adult can be a child, a sibling, a grandparent, or one of several other relatives who lived with you for more than half of the year.  

  • Your parents are also qualifying relatives, but it’s not required for you to share the same home.

For additional details about this status, including how you can claim it if you’re “considered unmarried” by the IRS, check out H&R Block’s Head of Household article on the matter.

Qualifying Widow(er) with Dependent Child

If your spouse passes away and you have at least one dependent child, you can file with this status for up to two years after your spouse’s death. This will allow you to use the same tax rate as the Married Filing Jointly status.

To be eligible for this status, your dependent must be your child, stepchild, or legally adopted child. Additionally, you must remain unmarried during that time. If you remarry, you’ll need to choose between Married Filing Jointly or Married Filing Separately.

Note: In the year your spouse passes away, you can still file as jointly or separately with your spouse for that tax year, whether you have a dependent or not.

Married Filing Jointly (MFJ)

Most married couples choose the Married Filing Jointly status. As the name implies, you and your spouse will combine all of your tax information on the same forms. That includes income, deductions, and credits. If one of you doesn’t have any income, you can still file together.

To be eligible for this status, you and your spouse must have been married on December 31 of the year for which you’re filing. As mentioned above, if your spouse passes away, you can still qualify for MFJ for that tax year.

Married Filing Separately (MFS)

In contrast to MFJ, couples filing separately will report income, credits, and deductions on their own separate forms. However, it’s important to note that in most cases couples are better off using MFJ vs. MFS.

That’s because many tax benefits are not available if you choose this tax filing status option (MFS). For example, the Earned Income Credit and Education Credits are not allowed when married couples file separately.

When is MFS a better option? There may be a situation where one spouse has a large discrepancy in earnings or expenses that might result in a larger tax liability or refund. To be certain of the best path here, you should prepare your return both ways to see how your tax liability (or refund) changes with each of these statuses.

Which Filing Status Has the Lowest Tax Rate and Other Considerations

Now that you understand the different tax filing statuses, we can talk about why it matters. Along with potentially being able to use a lower tax rate, the status you use can impact other tax benefits.

Tax rates/brackets – Generally, as your taxable income increases so does your tax rate. However, the income ranges and percentages are not the same for each filing status. Some have lower rates for the same income level. For example, if your taxable income is $40,000 for 2018, your marginal tax rate would be 22% if you file as Single. However, if you also qualify as Head of Household, your marginal tax rate would only be 12%.

The takeaway here is that if you qualify for more than one status, you can choose the one that gives you the lowest tax obligation.

Tax credits and deductions – Your tax filing status option can determine the tax benefits available to you, such as the Child and Dependent Care Credit or the Adoption Credit.  Another factor is that if you choose to take the standard deduction, you’ll see that the amounts are different for each filing status. For instance, if you’re eligible to file as Head of Household, you could take an $18,000 standard deduction for 2018 instead of the $12,000 amount for filing as Single.

Filing requirement – Your filing status, along with your age and gross income, determine your requirement to file a return. For example, if you’re under 65, your gross income is $12,000 and your status is Single, you’d generally need to file a return. However, if you’re eligible for the Head of Household status, your gross income is below the requirement and you generally would not be required to file a return.

Help for Your 2018 Taxes

Want to get an idea of your tax situation for the return you’re about to file?  H&R Block’s tax calculator will let you add your information, including your tax filing status, to get an estimate of how much you might owe or what your refund could be.

If you plan to use one of H&R Block’s online filing products, we’ll help you determine which filing status is right for you.

As part of our partnership with H&R Block, Mike Slack, JD, EA and senior tax research analyst at The Tax Institute at H&R Block will be providing insight on various topics throughout tax season.

Mike SlackComment