December 18, 2023

Head of Household vs. Married Filing Jointly: Which Tax Status is Right for You?

When it comes to taxes, picking the right tax filing status can make a big difference in what you owe or get back. Head of household and married filing jointly are common filing status options, and each comes with its own eligibility criteria. You can only qualify for one or the other, not both, so let’s break down each filing status and see which one may be best for you.

At a glance:

You can only claim head of household filing status if you are unmarried.
Filing as head of household gives you a higher standard deduction than as a single filer.
Married filing jointly makes sense for many married couples, with a few exceptions.

Head of household

First, let’s break down the head of household status.

Eligibility criteria:

This status is for those who are single but have dependents. You qualify for head of household filing status if you’re unmarried (or considered unmarried for tax purposes) and pay more than half the cost of housing and support for a qualifying person — a child, parent, or other dependent — for over half the year.

The IRS considers you to be unmarried if:

You haven’t lived with your spouse for the last six months of the tax year (temporary absences do not count)
You paid more than half the cost of household expenses during the year (such as mortgage interest, rent, property taxes, utilities, repairs, food, etc.)
Your home is the primary residence for your child
You plan to file a separate return from your spouse

To qualify as your dependent, the person must be:

A child under 19 at the end of the calendar year (or under 24 if the child is a full-time student)
A parent, if you provide at least half of their support (they do not necessarily have to live with you)
A qualifying relative, such as your grandparent or sibling, if you provide at least half of their support and they meet other criteria (as listed in IRS Publication 17)

Tax benefits:

People claim head of household status mainly because it gives you a bigger tax break. If you are unmarried, filing as head of household means you can claim a higher standard deduction than you would if you filed as single, meaning it reduces your taxable income more. For 2023, the standard deduction for head-of-household filers is $20,800 compared to $13,850 for single filers.

Scenario:

If you are a single parent raising a child on your own and footing most of the bills, you would likely qualify for head of household status, giving you a larger deduction than you would get as a single filer.

Married filing jointly

Now, let’s talk married filing jointly. This status is for married couples and allows them to file one combined income tax return.

Eligibility criteria:

Compared to head of household, the eligibility requirements for married filing jointly are pretty straightforward. To use this filing status, you simply need to be legally married by the end of the tax year and report your combined income with your spouse.

Tax benefits:

The main perk of married filing jointly is you only have to file one income tax return instead of two. This contrasts with married filing separately, where you would both file individual income tax returns.

In many cases, you will end up with less tax liability when filing jointly than if you filed as married filing separately. It can also open the door to more tax deductions and tax credits you would not qualify for if you filed separately, such as the Earned Income Credit or Child Tax Credit.

However, some exceptions exist where married filing separately may be more beneficial. We’ll go over some of those scenarios below.

Scenarios:

Let’s imagine you are legally married. Both you and your spouse work, but neither of you makes significantly more money than the other. You trust that your spouse is financially responsible and isn’t hiding any income. In this case, filing jointly as a married couple would probably be a good option for you.

Now, let’s say you and your spouse both work, but you have a much higher income and are in an entirely different tax bracket than your spouse. Your spouse had a lot of out-of-pocket medical expenses during the tax year. Since the IRS only allows you to deduct medical expenses exceeding 7.5% of your adjusted gross income (AGI), it may benefit you and your spouse to file separately. That way, your spouse’s AGI will be much lower than if you used your combined income, and they can claim a bigger tax deduction.

Lastly, if you are considering divorce or worried your spouse may be hiding something, it may be a good idea to file separately for your peace of mind. Just remember that both spouses must be on the same page when you choose to file separately. For example, if your spouse claims the standard deduction, you will have to do so as well — you won’t be able to itemize your deductions.

If you’re uncertain which filing status to choose, filing with us at TaxAct® may be beneficial. We’ll ask you some interview questions and suggest the most beneficial filing status for your situation based on your answers.

Key differences between head of household vs. married filing jointly

Now, let’s recap the main differences between filing as head of household and married filing jointly:

Marital status: If you’re unmarried with kids, you likely qualify for head of household status. If you are married, you don’t qualify for this status, but you could likely benefit from joint filing with your spouse.
Dependents: Filing as head of household requires you to support a qualifying person, while married filing jointly involves filing with your spouse — it doesn’t matter whether you have dependents.
Tax rates and deductions: Each status offers different tax rates and deductions. Head of household might mean lower rates and a higher standard deduction, while married filing jointly might open doors to different deductions and credits.

The bottom line

Choosing between head of household and married filing jointly boils down to your marital status and dependents. If you’re a single parent supporting one or more dependents, head of household might be right for you. If you’re married, and like the idea of filing your taxes together, married filing jointly could be the winning move.

We know tax rules can get messy, so if you’re still unsure, our tax prep software can help you pinpoint which filing status might be right for you.

This article is for informational purposes only and not legal or financial advice.

All TaxAct offers, products and services are subject to applicable terms and conditions.

The post Head of Household vs. Married Filing Jointly: Which Tax Status is Right for You? appeared first on TaxAct Blog.

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How to Pick Your Filing Status

Updated for tax year 2023.

When you file, your tax filing status makes a big difference in your tax return. Many people simply choose the status they believe best fits their situation, but you may have more than one option in some cases. At that point, it’s up to you to pick the status that offers you the most tax advantages.

Read on for an overview of each tax filing status and learn how to pick the right one for your tax situation, including important information on how to file taxes.

What are your tax filing options?

As of 2023, there are five tax filing statuses to choose from:

Single
Head of household
Married filing jointly
Married filing separately
Qualified widow or widower

We talk about each tax filing status in more detail below.

Single

2023 standard deduction for single filers: $13,850

Most people have probably filed as single at some point in their lives. Simply put, the single filing status is for those who are unmarried and don’t meet the qualifications of any of the other filing status.

Head of household

2023 standard deduction for head-of-household filers: $20,800

The head of household filing status is typically for unmarried people who financially support other people, but the name of this tax filing status can be confusing. Filing as head of household instead of single can be more advantageous because it offers a bigger standard deduction.

Often, people think that if you are married and are the only income earner in your household, you qualify as head of household, but that is incorrect. To be eligible for that status, you must be unmarried and provide the majority of financial support for at least one other person for the better part of the year.

You must fit the IRS definition of being unmarried. If you are not legally married, the IRS considers you unmarried. You are also considered “unmarried” if:

You haven’t lived with your spouse for the last six months of the tax year
You paid more than half the cost of your home during the year
Your home is the primary residence for your child
You plan to file a separate return from your spouse

To be considered head of household, the IRS also looks at your qualifying person — otherwise known as your dependent(s). A child is the most obvious dependent, but to qualify as a dependent, the child must live with you for over half a year and be under 19 years old. The child can also be under the age of 24 if they are a student.

Your parents can also count as qualifying dependents. To claim head of household status in this instance, you must prove that you pay for over half of your parents’ financial needs (even if they don’t live with you).

Married filing jointly

2023 standard deduction for joint married filers: $27,700

The married filing jointly filing status is relatively straightforward. To use this filing status, you must be legally married and report your combined income with your spouse. As a married couple, you only have to file one income tax return. You also claim all of your combined tax deductions and tax credits on the same tax return.

One advantage of filing jointly includes only having to complete one tax return. It’s also likely that you will end up with a smaller tax liability than if you filed separately. On the other hand, if your spouse isn’t responsible for their finances, you are held liable for paying the IRS. If you’re unsure if married filing jointly is right for you, check out I’m Married, What Filing Status Should I Choose?.

Married filing separately

2023 standard deduction for separate married filers: $13,850

Since filing jointly with your spouse usually brings less tax liability, what are the advantages of filing separately? Often the most significant reason married couples choose to file separately is that one of the spouses has a large amount of out-of-pocket medical expenses. Since the IRS only allows you to deduct the amount that exceeds 7.5% of your adjusted gross income, it can be next to impossible to claim the majority of those costs if you and your spouse have a high combined income.

Married couples may also choose to file separately if one of the spouses does not trust how their partner handled their finances during the year. Filing separately can be a way to avoid being on the hook to pay the other spouse’s tax liability. Also, if a couple is divorcing, they may choose to keep their tax returns separate. Although, if their divorce is not finalized by Dec. 31, they can still file a joint return if they choose.

It’s important to note that being married but filing separately is not the same as filing single. Each status has an entirely different tax bracket. Married couples who file separately typically pay more in taxes than married couples who file jointly. That is because separate filers cannot claim several of the tax deductions and credits available to those who file jointly.

Qualified widow or widower

2023 standard deduction for qualified widow(er) filers: $27,700

It may seem pretty obvious who would qualify for this filing status, but the IRS has particular notes about what constitutes a qualified widow or widower. This tax filing status is for those who not only have lost a spouse but are also providing financial support for a child who lives at home.

The qualifying widow or widower status is unique in that you are only eligible for it for a set period. Although your personal situation might not change, the IRS only allows you to file as a widow or widower for a couple of years.

For instance, if your spouse passed away last year, you could file your taxes as married filing jointly for that tax year. In the two years following, you qualify to file as a widow or widower as long as you have a dependent living at home. This status exists for newly widowed individuals who are easing back into becoming single. By electing the widower filing status, you can still file as if you were married, which likely will keep your taxes lower than if you filed single.

I got divorced during the tax year. Which filing status should I choose?

If you went through a divorce, the IRS counts you as being unmarried for the entire year, even if your divorce wasn’t finalized until December. In this case, you should file your taxes as single for the year in which you got the divorce, unless you’re eligible for the head of household filing status or you remarry by the end of the year.

TaxAct makes tax filing easy

Once you pick your filing status, you can use intelligent tax software to actually file your tax return. Tax prep software like TaxAct® can help you figure out which tax filing status is best for you and can aid you in filing your return, making tax season as simple and painless as possible.

This article is for informational purposes only and not legal or financial advice.

All TaxAct offers, products and services are subject to applicable terms and conditions.

The post How to Pick Your Filing Status appeared first on TaxAct Blog.

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How to Tell If You Are Self-Employed

If you’re a freelancer, it’s critical to know whether you’re self-employed or an employee. The distinction has a major effect on your tax responsibilities.

Categories of self-employed workers

You should consider tax and other factors when choosing a legal structure for your business.

Generally, the Internal Revenue Service (IRS) considers you to be self-employed if you fall into any of these categories of individuals who carry on a trade or business:

Sole proprietor: A “solo” is one person who owns an unincorporated business.

Limited Liability Company (LLC): An LLC combines some tax and other advantages of a corporation and a partnership. An LLC can consist of a sole member.

Independent contractor: Generally, you might be an independent contractor if you have the power to decide when, where, and how you work on a specific project. If you fall into this category, you might also refer to yourself as a freelancer.

Member of a partnership: A partnership is comprised of at least two people engaged in a business who share the profits and losses from that business.

Self-employed on a part-time basis

It’s important to understand you don’t have to work full-time in your business venture to be classified as self-employed. You might work for one employer, but you’re also self-employed performing tasks or services for several freelance clients. For example, you could be a project manager at a traditional 9-to-5 job with a side gig as a consultant or public speaker. In that case, you’d be both a traditional employee and self-employed.

Why it matters whether you’re self-employed

If you’re self-employed, your tax position is vastly different than a traditional employee’s. The major distinction is that self-employed individuals are responsible for paying their own taxes.

If you’re traditionally employed, your employer must withhold income tax and amounts for Medicare and Social Security from your paycheck. They are responsible for reporting and remitting those dollars to the tax authorities. When you work for yourself, those company responsibilities are now your own. This is called the self-employment tax.

Tax reporting

When you work for a traditional employer, they mail a Form W-2, Wage and Tax Statement, to any employee that earned at least $600 in wages at the end of the year.

However, when you freelance, the situation is a bit different. A freelance client sends a Form 1099-NEC, Nonemployee Compensation, to any freelancer who they paid at least $600 for a dedicated project or service.

Additionally, if you were paid via a payment card or third-party payment company (e.g., PayPal, Stripe, Square) for at least $20,000 and at least 200 transactions you should receive a Form 1099-K, Payment Card and Third Party Network Transactions, from each entity that met those thresholds.

NOTE: If a third-party payment company properly sends you a Form 1099-K, the freelance client should NOT also issue you a Form 1099-NEC. Otherwise, your income might be taxed twice.

Self-employed tax responsibilities

If you’re self-employed, you’re required to pay the IRS (and possibly state taxing authorities) directly. You don’t have an employer to take care of it for you.

In addition, you may be required to pay your taxes on a quarterly basis rather than annually on the mid-April filing date. That’s because the IRS expects you to pay the taxes you owe as you earn the money. To account for this, whenever you start working on a project, it’s a good idea to immediately determine how you should be classified in that particular work situation, then promptly pay your taxes if you’re self-employed. After all, as a business owner, you want to lessen the possibility of a stressful tax audit and concentrate instead on growing your business.

This article is for informational purposes only and not legal or financial advice.

The post How to Tell If You Are Self-Employed appeared first on TaxAct Blog.

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