For federal income tax purposes, there are five tax “statuses:” single; head of household; married filing jointly; married filing separately; and qualifying widow(er) with dependent child. Status affects tax credits and deductions, and therefore also affects the amount of taxes owed. This article focuses on married persons filing jointly or separately.
Married Status and Consequent Options
Consistent with federal law, for tax purposes, marriage is defined as a legal union between a man and a woman, as husband and wife. Taxpayers who are considered to be validly married have the option of choosing to file a tax return as:
- Married filing a joint return;
- Married filing a separate return;
- Head of household, under certain circumstances.
Those considered married include:
- Those in divorce proceedings, but without a final decree by the last day of the year.
- Those unmarried and living together as husband and wife.
- A taxpayer whose spouse died that year, unless remarried before the end of the year.
- Those living together in “common law marriages,” if such a marriage is recognized in the state of current residence or the state where such marriage began.
- Those married and living apart, but not legally separated.
- Those separated under an interlocutory decree of divorce (i.e., a divorce decree which is not yet final).
Those who obtain an annulment are treated as if the marriage never happened, and will be considered unmarried even if they previously filed joint returns for earlier tax years. A taxpayer is deemed unmarried for “head of household” purposes if the spouse was a nonresident alien at any time during the year, under certain circumstances.
Joint Income Tax Returns
Married taxpayers have the option of filing a joint tax return, even when one spouse had no income or exemptions, but both spouses must agree to file a joint return. If filing jointly, the taxpayers must include all of their income, exemptions, deductions, and credits on the one return. At least one spouse must be a U.S. citizen or resident at the end of the tax year. Both spouses must sign the joint return, and both are liable, jointly and individually, for any tax and penalties arising from the return.
This joint liability may be a major drawback to filing a joint return. If one spouse fails to report income, the other spouse may be held responsible for resulting delinquent taxes, penalties, and interest. Tax law allows a spouse to avoid this liability, if relief is sought within two years and under certain circumstances, including:
- Where one spouse is “innocent,” i.e., there was an understatement of income, of which one spouse was completely unaware, therefore it would be unfair to hold the innocent spouse liable.
- When spouses are divorced, legally separated, have been living apart for 12 months, or one spouse has died, an innocent spouse may be able to elect to be liable only for the portion of the liability attributable to that spouse, as if separate returns had been filed.
- When, under all the facts and circumstances, it would be inequitable to hold the innocent spouse liable, as long as the liability is unpaid when the relief is requested, no “disqualified” assets were transferred to the innocent spouse, and the joint return was not filed with fraudulent intent.
Separate Income Tax Returns
Married taxpayers may also choose to file separately; each taxpayer will be responsible only for their own taxes and filing. If the spouses do not agree to file a joint return, they may have to file separately. Filing separately generally leads to higher taxes, because it affects tax rates, standard and itemized deductions, and tax credits. Tax returns for married taxpayers filing separately have special rules and restrictions, including:
- The exemption amount for calculating alternative minimum tax is half the amount allowed for a joint filer.
- The credit for child and dependent care cannot be taken in most cases and the amount excludable for employer dependent care assistance may be halved.
- The earned income credit is not available.
- In most cases the credit or exclusion for adoption expenses is unavailable.
- Education credits and deductions for student loan interest and tuition and fees cannot be taken; other deductions and credits are reduced by half.
- The capital loss deductions may be halved.
- If the spouse chooses to itemize deductions, the taxpayer must do so also and cannot claim the standard deduction (even if such a deduction is available, it may be half that for joint returns).
- The taxpayer may not be able to claim a credit for the elderly or the disabled, if the taxpayer lived with the spouse at any time during the year.
- Roll over from a traditional IRA into a Roth IRA may not be permitted.
The status listed on a return may be changed from separate to joint anytime within three years of the due date of the separate return. However, the status of a joint return cannot be changed to separate, except where there has been an annulment.
Head of Household Tax Return
A taxpayer may be able to file as head of household if:
- Unmarried or considered unmarried (under several tests) on the last day of the year;
- Paid more than half the costs of keeping up a home for the year
- A “qualifying person” lived with them for more than half the year, except for temporary absences, such as for school (“qualified persons” include various blood, in-law, and step relatives, and adopted and foster children, provided they can be claimed as an exemption by the taxpayer).