Restarting life after divorce as a newly single parent can really take its toll on you emotionally, mentally, and financially. Similarly, having a child with someone you never married, and are no longer in a relationship with, can be equally difficult. If you’re in one of these situations, your tax filing status is probably one of the last things on your mind.
However, you can’t ignore this important issue: filing your taxes with the most beneficial status for you can lead to a significantly larger tax return. As someone who recently divorced and is now a single parent, I can tell you that every penny counts! Take the time to research your tax filing status thoroughly and you will be able to ease at least a small portion of your financial worries.
Once you’ve decided to evaluate your tax filing status, the next logical question is whether it is better to file as single or head of household. The answer is simple – you either qualify for one status or the other. There is no decision-making process.
Since I recently got divorced, I had to determine which filing status applied to me. As it turns out, for last year, I qualified for head of household. Had I not done my research and realized that I qualified, I would have left a lot of money on the table by filing as single.
To help ensure you don’t make that mistake, I have outlined the qualifications and benefits for each status below:
Importance of Filing Correctly
Before we get into the hows and whys of single and head of household status, I want to mention three key points:
- Keep Your W-4 Up to Date. If you are a newly single parent, according to the IRS, you must submit an updated W-4 form with your employer within ten days of your divorce being finalized. This will help keep your federal income tax withholding accurate.
- Your Status Carries Over. Your legal, marital status on the last day of any tax year will basically determine your filing status for that entire year. If you were divorced on December 31 of last year, then you are considered divorced for the entire year in the eyes of the IRS.
- You Don’t Want to Screw This Up. Believe me, even though you may consider yourself to be the “head of the household,” you may not be under the rules of the IRS. Make sure you do your research and get it right the first time. It’s not like you can file your taxes with an incorrect status and wonder if the IRS will ever figure it out. By filing under an incorrect status, you risk having your entire return rejected by the IRS, or being subject to additional taxes, interest, and penalties.
Basically, while filing incorrectly could help you out in the immediate future, if it’s done wrong, it could become costly over the long run. Keep these points in mind as you read on.
Filing as Single – Qualifications
As far as figuring out if you qualify as a “single” person, the guidelines are pretty straightforward. According to the IRS, your filing status is single if, on the last day of the year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree, and you do not qualify for another filing status.
I’ll be honest with you – you would be hard-pressed to find any significant financial benefits to filing as single, especially if you were divorced and will now lose out on your ex-spouse’s tax deduction. This is one of the reasons why you need to make sure that you don’t qualify for the head of household status discussed below. If you don’t, then you have no other choice than to file as single.
But, if you do have to file as single, there is a silver lining:
- Simplified Returns. Your return should be much easier to compile. You might even be able to use the 1040-EZ form rather than the standard 1040 tax form. This means you could utilize free online tax preparation software and services.
- Less Paperwork to Dig For. Additionally, you can look forward to a less complex return as you are only filing your taxes based upon your own personal tax documents. This means less research and less document gathering. Trust me, this could be a big benefit if you are recently divorced and are not on the greatest terms with your ex-spouse.
Filing as Head of Household – Qualifications
The rules for being eligible for head of household are complicated, extensive, and very specific. In fact, they are so specific that I am not able to outline every single qualifier in this article. I strongly encourage you to talk to your accountant or visit the IRS website before determining your filing status.
In a nutshell, here are the qualifications:
You must have a qualifying dependent who is related to you and also meets the requirements to be either a “qualifying child” or “qualifying relative.”
- Qualifying Relative. In order to be considered a qualifying relative, that person must not meet the requirements as a qualifying child or relative of anyone else. Their gross income must be less than your federal exemption amount for that year, and you must have had provided more than half the support of that person during the calendar year.
- Qualifying Child. The person must be under 19 years of age, or a full-time student under the age of 24. They must have lived with you for more than half the year and not have provided for more than half of his or her own support.
2. Housing Costs
You must also pay more than half the costs for the maintenance of the home in which you and your qualifying dependent lived for more than half the year.
To illustrate a little more clearly, I found that I qualfied for the head of household status because I was divorced late last year and therefore paid for more than half the support of my son (my qualifying child) for the calendar year. He did not meet the requirements as a qualifying child for anyone else, and also lived with me for more than half the year. Unfortunately, I will not be able to qualify for head of household next year, as my son won’t be living with me for more than half the year.
In very limited instances, you may qualify to file as head of household even if you are still legally married.
In short, although it may be much more difficult to decipher whether or not you qualify for head of household, if you do, the tax breaks are significant. Here are a couple of ways you’ll benefit:
- Higher Standard Deduction. The standard deduction for head of household is much higher ($8,500 for head of household vs. $5,800 for single filers).
- More Favorable Tax Rates. You get more favorable tax rates because, as a head of household filer, you qualify for lower tax brackets (depending on your income) than you would if you filed single.
Ultimately, with these benefits, it is clear that filing as head of household is a much better option than filing as single.