The head of household filing status is designed for individuals who are unmarried or “considered unmarried” and who are paying a majority of the costs for taking care of a dependent. This filing status can lower your tax liability considerably, but it is easy to become confused by the various qualifications.
Head of household filing status can lower your tax liability in several ways. The most obvious benefit is that the standard deduction is higher than that of filing single. It is lower than that of a married couple, but includes only one person’s income. However, there are advantages throughout the tax code. In many cases, these are comparable to that of a person who is married and filing jointly, but not available to those who are married filing separately.
In order to file as a head of household, you need to have a “qualifying dependent.” This dependent can be either a qualifying child or a qualifying relative. For qualifying children, there are five tests, which include relationship, age, residency, support and a special test for a qualifying child of more than one person. According to Internal Revenue Service (IRS) Publication 501 “a child must be under age 19 at the end of the year, a full-time student under age 24 at the end of the year, or permanently and totally disabled at any time during the year, regardless of age” in order to qualify as a dependent.
The category of “considered unmarried” can be confusing, but the IRS has laid out some specific tests. Of these, the most important is the requirement that your spouse cannot live in the home for the last six months of the tax year. Other requirements include filing a separate tax return, paying more than half the cost of keeping up your home, having a qualifying child live with you for more than half the year, and being able to claim an exemption for that child.
Only one person can claim head of household status per residence. It does not matter whether the adults are married to each other, or even related. The head of the household is considered to be the person who pays the majority of the “costs of keeping up a home.” This is the key to the “support” test. The second adult can still claim the dependency exemption for his or her child, but will file as single rather than head of household.
The IRS has specific considerations for what is and is not included in the cost of keeping up a home. This worksheet is provided as part of Publication 501 and its basic format is that of a two-column list. The first shows the amount you paid and the second the total cost. The categories include Property Taxes, Mortgage Interest/Rent, Utilities, Upkeep and Repairs, Property Insurance, Food, and Other Household Expenses. Costs such as clothing, education, vacations, life insurance and transportation are not included.
There are exceptions available for divorced or separated parents. Form 8332 allows a custodial parent to release his or her exemption to the noncustodial parent. This form (or a similar statement) can override the tests for support and residency. It should be filed with the noncustodial parent’s tax return. The agreement can be for multiple years, but a copy will need to be attached for each year.