Filing status

06 Dec, 2015 TAX LAW 0

Chapter 2
Filing status

This chapter helps you determine which filing status to use. There are five filing statuses.

Single.
Married Filing Jointly.
Married Filing Separately.
Head of Household.
Qualifying Widow(er) With Dependent Child

You must determine your filing status before you can determine whether you must file a tax return (chapter 1), your standard deduction (chapter 21), and your tax (chapter 31). You also use your filing status to determine whether you are eligible to claim certain deductions and credits.

Useful Items

You may want to see:

Publication

501 Exemptions, Standard Deduction, and Filing Information
519 U.S. Tax Guide for Aliens
555 Community Property

Tax Breaks and Deductions You Can Use Checklist

Married filing separately. If you’re married it’s usually more beneficial for you to file a joint return. But there are circumstances where filing a separate return might be a better idea. For example, if one spouse has substantial medical or employee business expenses, you may be able to reduce your combined tax liability by filing separate tax returns. Other reasons to file separate returns are if one spouse does not want to be exposed to any unknown tax liability of the other or if one spouse refuses to provide the information necessary to file a joint return to the other spouse.

Married filing jointly. Jointly filed returns typically result in a lower tax liability for married couples versus filing separately. Other advantages to filing jointly are (1) a nonworking spouse is eligible to contribute to a spousal IRA even though he or she may not have any earned income; (2) it is generally less costly and time consuming to complete one return instead of two; (3) you can reduce your taxable income by the highest standard deduction if you don’t itemize; (4) if you itemize, the limitation used to determine your home mortgage interest deduction is not reduced; and (5) certain tax credits such as the child and dependent care credit, adoption credit, earned income credit, American opportunity credit, and lifetime learning credit are generally only available to married couples if they file a joint return. A qualified widow or widower may also be eligible to file a joint return for two tax years following the death of their spouse if certain requirements are met.

Head of household. A special filing status called “Head of Household” can save you a significant amount of taxes. If you qualify, you can use the lower rates and other benefits available for this status, such as potential eligibility for the earned income credit, a higher standard deduction than single or married filing separately, and additional personal exemptions that reduce your taxable income.

In order to qualify you must meet these requirements:

You must be unmarried or “considered unmarried” on the last day of the year,
You paid more than half the cost of keeping up a home for the year, and
A “qualifying person” lived with you in the home for more than half the year (except for temporary absences, such as school). If the “qualifying person,” however, is your dependent parent, he or she does not have to live with you.

Marital Status

In general, your filing status depends on whether you are considered unmarried or married.

Unmarried persons. You are considered unmarried for the whole year if, on the last day of your tax year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree. State law governs whether you are married or legally separated under a divorce or separate maintenance decree.

Divorced persons. If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year.

Divorce and remarriage. If you obtain a divorce for the sole purpose of filing tax returns as unmarried individuals, and at the time of divorce you intend to and do, in fact, remarry each other in the next tax year, you and your spouse must file as married individuals in both years.

Annulled marriages. If you obtain a court decree of annulment, which holds that no valid marriage ever existed, you are considered unmarried even if you filed joint returns for earlier years. You must file Form 1040X, Amended U.S. Individual Income Tax Return, claiming single or head of household status for all tax years that are affected by the annulment and are not closed by the statute of limitations for filing a tax return. Generally, for a credit or refund, you must file Form 1040X within 3 years (including extensions) after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later. If you filed your original return early (for example, March 1), your return is considered filed on the due date (generally April 15). However, if you had an extension to file (for example, until October 15) but you filed earlier and we received it on July 1, your return is considered filed on July 1.

EXPLANATION

Invalid divorces. This is a very confusing subject because courts in different geographic locations disagree with each other. Furthermore, the courts and the IRS have interpreted the law differently.

Generally, the law in your state of residence determines whether you are legally married. The marital laws in every state require you to be unmarried before being allowed to get married. Therefore, you may not file a joint return with your second spouse unless the marital relationship with your first spouse has been severed. Only a few states recognize common-law marriage, and only residents of those states may file as married filing jointly if they are in a common-law marriage relationship.

While terminating a marriage is usually a matter of obtaining a divorce from a domestic or foreign court, it is not always that straightforward. When a particular state’s law does not recognize the validity of a divorce decree acquired in another jurisdiction, the IRS and the courts disagree over the status of the divorce.

The Second and Third Circuit Courts of Appeals adhere to the so-called rule of validation. Basically, this rule specifies that a divorce in any court’s jurisdiction must be recognized for the purposes of tax law. Consequently, under the rule of validation, a valid joint return may be filed with a second spouse. However, the IRS, the Tax Court, and the Ninth Circuit Court of Appeals do not support the rule of validation. Instead, they maintain that a second court possessing jurisdiction may declare a prior divorce invalid. Thus, a return filed jointly by a party of the invalid divorce and a subsequent marriage partner may not be valid. Nevertheless, neither these courts nor the IRS will challenge the validity of a divorce decree until a court of competent jurisdiction has declared the divorce invalid.

Prisoners of war. You are still considered to be married if your spouse is a prisoner of war (POW) or is listed as missing in action (MIA). Even if you subsequently discover that your spouse died in action or in captivity in a prior year, you cannot alter your married filing status on prior income tax returns.

TAXSAVER

When to get divorced. December is the better month to get divorced if spouses have similar incomes. In this way, you can file single returns for the entire year. January is the better month to get divorced if one spouse has considerably more income than the other and you both want to save on taxes.

The IRS contends that actions that are designed to control an individual’s marital status at the close of the year for tax purposes, such as a year-end tax-motivated divorce followed by immediate remarriage, are shams and should be disregarded for tax purposes. According to the IRS, individuals retain their married status when:

1.A divorce under the laws of a foreign jurisdiction is obtained late in the year.
At the time of the divorce the parties intend to remarry.
The remarriage occurs in January of the next year.

However, a divorce followed by cohabitation is not necessarily a sham. The IRS has recognized such arrangements and has allowed individuals to claim single filing status as long as they say that they intend to remain divorced and not remarry each other.

Head of household or qualifying widow(er) with dependent child. If you are considered unmarried, you may be able to file as a head of household or as a qualifying widow(er) with a dependent child. See Head of Household and Qualifying Widow(er) With Dependent Child to see if you qualify.

Married persons. If you are considered married, you and your spouse can file a joint return or separate returns.

Considered married. You are considered married for the whole year if, on the last day of your tax year, you and your spouse meet any one of the following tests.

You are married and living together as a married couple.
You are living together in a common-law marriage recognized in the state where you now live or in the state where the common-law marriage began.
You are married and living apart, but not legally separated under a decree of divorce or separate maintenance.
You are separated under an interlocutory (not final) decree of divorce.

Same-sex marriage. For federal tax purposes, individuals of the same sex are considered married if they were lawfully married in a state (or foreign country) whose laws authorize the marriage of two individuals of the same sex, even if the state (or foreign country) in which they now live does not recognize same-sex marriage. The term “spouse” includes an individual married to a person of the same sex if the couple is lawfully married under state (or foreign) law. However, individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not considered a marriage under state (or foreign) law are not considered married for federal tax purposes. For more details, see Publication 501.

EXPLANATION

Registered domestic partnerships and civil unions. Individuals of the same sex and opposite sex who are in registered domestic partnerships (RDP), civil unions, or other similar formal relationships that are not marriages under state law are not considered as married or spouses for federal tax purposes. Such couples may not file a federal return using a married filing separately or jointly filing status. Instead, each partner can only select single filing status, or if qualified, the head of household filing status when filing their own federal income tax return.

In addition, an RDP in Nevada, Washington, or California generally must follow state community property laws and report half the combined community income of the individual and his or her RDP on their individual federal income tax returns, according to the IRS (see IRS Publication 555, Community Property, or a series of FAQs posted to the IRS website at “http://www.irs.gov/uac/Answers-to-Frequently-Asked-Questions-for-Registered-Domestic-Partners-and-Individuals-in-Civil-Unions” for more details). Each taxpayer is also entitled to half of any taxes withheld since the RDP is the recipient of one-half of the couple’s community property income. These rules apply to RDPs in Nevada, Washington, and California because they have full community property rights in 2010 and following years. RDPs in California attained these rights as of January 1, 2007. Nevada RDPs attained them as of October 1, 2009, and Washington RDPs attained them as of June 12, 2008.

If you are in a registered domestic partnership, civil union, or other similar formal relationship that is not marriage under state law, you should consult with a professional tax advisor for advice on preparing your federal and state tax returns, as these rules are complex and are constantly evolving.

Example

John and Mark are RDPs in California. In 2014, John earned wages of $20,000 and Mark earned wages of $100,000. When applying the community property rules discussed above, John and Mark file separate Federal income tax returns; however, their income is split equally with each reporting income of $60,000 (one-half of their community income of $120,000), rather than John reporting income of $20,000 and Mark reporting income of $100,000 on their respective 2013-2014 Federal income tax returns. Each is also entitled to claim credit for half of the income tax withheld on their combined wages of $120,000.

Spouse died during the year. If your spouse died during the year, you are considered married for the whole year for filing status purposes.

If you did not remarry before the end of the tax year, you can file a joint return for yourself and your deceased spouse. For the next 2 years, you may be entitled to the special benefits described later under Qualifying Widow(er) With Dependent Child.

If you remarried before the end of the tax year, you can file a joint return with your new spouse. Your deceased spouse’s filing status is married filing separately for that year.

Married persons living apart. If you live apart from your spouse and meet certain tests, you may be able to file as head of household even if you are not divorced or legally separated. If you qualify to file as head of household instead of married filing separately, your standard deduction will be higher. Also, your tax may be lower, and you may be able to claim the earned income credit. See Head of Household, later.

Single

Your filing status is single if you are considered unmarried and you do not qualify for another filing status. To determine your marital status, see Marital Status, earlier.

Widow(er). Your filing status may be single if you were widowed before January 1, 2014, and did not remarry before the end of 2014. You may, however, be able to use another filing status that will give you a lower tax. See Head of Household and Qualifying Widow(er) With Dependent Child, later, to see if you qualify.

How to file. You can file Form 1040. If you have taxable income of less than $100,000, you may be able to file Form 1040A. If, in addition, you have no dependents, and are under 65 and not blind, and meet other requirements, you can file Form 1040EZ. If you file Form 1040A or Form 1040, show your filing status as single by checking the box on line 1. Use the Single column of the Tax Table or Section A of the Tax Computation Worksheet to figure your tax.

Married Filing Jointly

You can choose married filing jointly as your filing status if you are considered married and both you and your spouse agree to file a joint return. On a joint return, you and your spouse report your combined income and deduct your combined allowable expenses. You can file a joint return even if one of you had no income or deductions.

If you and your spouse decide to file a joint return, your tax may be lower than your combined tax for the other filing statuses. Also, your standard deduction (if you do not itemize deductions) may be higher, and you may qualify for tax benefits that do not apply to other filing statuses.

EXPLANATION

Marriage tax penalty. Married taxpayers who earn approximately the same income may pay more tax if they file a joint return or file separate married returns than they would if they filed two single returns. This is known as the “marriage penalty.”

Tax legislation enacted in 2013 included provisions to reduce the marriage penalty. Specifically, the basic standard deduction for joint returns is twice the amount of the standard deduction available to single filers. Also, the size of the 15% tax bracket (i.e., the range of taxable income subject to the 15% tax rate) for taxpayers who are married filing jointly is set at twice the size of the 15% bracket for single filers. Despite this relief, the marriage penalty can still impact married taxpayers who file jointly or even as married filing separately. This is because the size of the tax brackets for tax rates over 15% that apply to married taxpayers is smaller than the size of the corresponding rate bracket for an unmarried individual filing a single return. As a result, higher tax rates kick in at lower levels of taxable income for married taxpayers than for single taxpayers.

On the other hand, married couples with a large disparity in earnings and other taxable income may find that their combined taxes when filing a joint return is lower than the sum of the tax liabilities each would have had, had they been been unmarried with each filing as single. This is referred to as a “marriage bonus.”

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