I recently had a casual conversation with a taxpayer about filing statuses. The simplest definition of filing statuses is contained in IRS Publication 17, which states “In general, your filing status depends on whether you are considered unmarried or married.”
This is where it gets confusing. Pub 17 goes on to define an unmarried person as someone who is either unmarried or legally separated under a divorce or separate maintenance decree. The word most often overlooked is “legally.” Interestingly, the test does not depend on the amount of time the couple lived together. The only important date is December 31st.
Let’s explore filing status and how it affects your tax return. If a taxpayer has never married, they are considered unmarried, which is obvious. The filing status is Single.
From this point it is important to take it step by step from the point of marriage. A taxpayer is considered married for the entire year if any of the following options are true.
- Both taxpayers are married and living together.
- If you live in one of the eight states (or the District of Columbia) that acknowledge common law marriage, or the if the relationship began in one of those states.
- You are married and living apart without a court ordered maintenance agreement.
- You are separated under an interlocutory decree of divorce. An interlocutory decree is not the final degree.
The third bullet is often overlooked when determining marital status.
There is one exception to the above rules. If the marriage is annulled, the IRS takes the position that the marriage never happened. This requires the taxpayers to file amended returns within the later of three years after the court order or two years after paying the original taxes. Usually the three-year rule applies. For the rest of our discussion, we will assume taxpayers that have been married are either still married or divorced.
If two taxpayers are legally married on December 31st according to the rules above, they have only two possible filing statuses, Married Filing Jointly (MFJ) and Married Filing Separately (MFS). In most cases those who filed MFJ will have the lowest tax liability.
Those who file MFS generally end up paying higher taxes. Additionally, these taxpayers can’t take the credit for child and dependent care expenses in most cases. Filing MFS also cuts the employer’s dependent care exclusion in half. These aren’t the only limitations or credits you can’t take. In all the years I have been preparing tax returns I have rarely come across a case where MFS was better for the household. The difference to the household can be staggering depending on the case.
Filing Single is the only acceptable status for a person who has never been married, has a final divorce decree, or has been widowed for more than three years. Then the only restrictions are income. All the other credits and exclusions are available if the taxpayer otherwise qualifies.
There are two special filing statuses that may be applicable to the previously married taxpayer. The first is Qualifying Widow(er). If a spouse dies during the tax year, the surviving spouse may file MFJ as long as the surviving spouse doesn’t remarry. After the initial year, the surviving spouse may claim Qualifying Widow(er) for the following two years. This status is a better status than Single.
The final status is Head of Household. If the taxpayer is unmarried as defined above; paid more than half of the cost of the upkeep for the year; and a qualifying person lived in the home for more than half the year. There are a number of special rules and consulting with a competent professional to choose appropriately will save the taxpayer.
There are severe criminal penalties associated with purposely claiming a status for which a taxpayer is not eligible. These charges include, tax evasion, willful failure to file a return, fraud, or preparing and filing a fraudulent return.
If a taxpayer discovers they have inadvertently filed the wrong status, an amended return filed before the IRS finds the error will go a long way to protect the taxpayer from prosecution. Contact us at Books, Taxes & More to sort through these issues.