What filing status should I use on my tax return?
According to Publication 17 (from the IRS), a filing status is what determines your requirements to file a tax return, your standard deduction amount for the year, your eligibility for certain credits and deductions, and the correct amount of tax you are liable for the year. Using the correct filing status will not only help you pay the correct amount of tax you owe to the IRS and state, but it will also help you determine your eligibility for some tax credits and deductions that may benefit you if you qualify for them.
There are five filing statutes you may choose from on your tax return. For some of you, choosing the correct status might be easy and straight forward, but for others it might be more complicated as there are tax exceptions that may apply to them. Here are the 5 filing statuses you can select on your tax return if you qualify:
1. Single: You are only considered Single if you have never been married or if on the last day of the year you are legally separated from your spouse under a divorce or separate maintenance decree. The standard deduction for the Single status is $ 13,850 for 2022 taxes.
2. Married Filing Jointly: You and your spouse can choose this status if you are legally married on the last day of the year. You can also select this status if your spouse died during the taxable year, assuming you have not remarried. You can benefit from filing a joint return.
Married filing jointly couples have the highest standard deduction, $27,700 for 2022 taxes, which lowers your taxable income and therefore, you would pay less taxes. You may also qualify for the Earned Income Credit, the Child and Dependent Care Credit, and the Education Credits (you must meet other requirements for all these credits but filing jointly is one of them).
3. Married Filing Separately: This status is not advantageous for married couple, unless you don’t want to assume a joint tax liability (if your spouse fails to pay taxes, you will be held responsible for his/her share) and if you would like to keep your finances separately. Selecting this status will make you pay more taxes than any other filing status. Here is why:
Your tax rate is higher than on a joint return.
You will not qualify for the Child and Dependent Care Credit, the Earned income Credit, the Lifetime Learning Credit, the American Opportunity Tax Credit, Student Loan Interest Deduction, and the Adoption Expenses Credit.
Your standard deduction is lower than married filing jointly, $13,850 for 2022 taxes.
If your spouse chooses to itemize his tax return, you must itemize as well (can’t take the standard deduction for the year).
If you have a capital loss for the year, you are limited to claim only half of the deduction ($1,500 instead of $3,000 on a joint return).
The Child Tax Credit and the Retirement Savings Contributions Credit are reduced.
4. Head of Household: This status has a lower tax rate than filing Single or Married Filing Separately and has a higher standard deduction than those filing statuses, $20,800 for 2022 taxes. However, you must meet the following requirements to qualify:
You are unmarried or considered unmarried on the last day of the year.*
You paid more than half of the cost of keeping up a home for the year.
A qualifying person lived with you in the home for more than HALF the year (Exceptions apply). If you have a qualifying relative, and they don’t meet the relationship test, they must live with you the entire year. Note, your dependent parents don’t have to live with you.
*According to Publication 17, to be considered unmarried you must:
o File a separate return.
o Had paid more than half of the cost of keeping up your home for the tax year.
o Not lived with your spouse during the last 6 months of the tax year.
o Your home is the primary home of your qualifying child or dependent for more than half the year.
5. Qualifying Widow(er) with a Dependent Child: Selecting this status will give you the same benefits as married filing jointly (they have the same tax rates and standard deduction, $27,700 for 2022 taxes). This status can only be claimed for up to 2 years after year of spouse’s death- you can use Married Filing Jointly the first year of your spouse’s death, and Qualifying Widow (er) with a dependent child for the following 2 consecutive years). However, you must meet the following requirements to use this status:
You qualified (no matter if you used it or not) to file as Married Filing Jointly for the year of your spouse’s death.
Your spouse died during the last 2 years, and you did not remarry.
You have a qualifying child who you can be claimed as your dependent.
Your qualifying child lived with you in your home the entire year (exceptions apply).
You paid more than half the cost of keeping up your home for the tax year.
According to the IRS, your filing status for the tax year may be affected by some changes you may have during the year. These changes include:
Marriage
Divorce
Birth of a new baby
Adoption of a child
Death
It is very important to choose the right filing status as it may affect your tax refund or tax liability. If you are unsure as of which filing status is the right one for you, you may contact us with any questions.
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