One of the first steps in filing your tax return is determining your filing status. The five distinct filing statuses are single, married filing jointly, married filing separately, head of household, and qualifying widower. For the most part, the filing status you’re eligible to choose depends upon your marital status.
The head of household filing status not only ask your marital status but also whether or not you have a qualifying person that depends on your support. But with the elimination of the dependency exemptions in 2018 are you still qualified to claim head of household? The short answer is that you might be better off than you were before.
Who Can File Head of Household?
To be eligible to file as head of household you must pass the three questions test – fail one of these questions and you’re out (well at least out of the HOH filing status):
- You are unmarried or considered unmarried at the end of the year.
- You paid more than half the cost to upkeep your home.
- A qualifying person lived with you more than half the year.
Let’s dive into those questions a little deeper:
How am I Considered Unmarried?
Just because you are legally married doesn’t mean you’re technically married for filing as head of household. You can be considered unmarried if all of the following apply to you:
- You file a separate return – married filing separate, single, or head of household.
- You paid more than half the support to upkeep your home.
- Your spouse didn’t live with you for the last 6 months of the tax year. (Example: He left in March of last year and he hasn’t lived in the home since.)
- Your home was the main home of your child, stepchild, or foster child for more than half the year.
- You must be able to claim an exemption for the child. However, you meet this test if you can’t claim the exemption only because the noncustodial parent can claim the child. Although the personal exemption is going away in 2018 you’ll still apply the same rules to see if you can claim the child.
What Counts as Paying Half The Cost to Upkeep the Home?
Paying all the bills doesn’t automatically qualify you as head of household. You have to look at both the sources of income and the expenses you are paying. For example, the following are expenses considered as the upkeep of the home.
- Mortgage interest
- Real estate taxes
- Insurance on the home
- Food eaten in the home
Expenses that don’t count towards the upkeep of the home are:
- Medical treatment
- Life insurance
- Netflix subscription (I just threw that one in there)
If more than half of the upkeep of the home comes in the form of child support or government assistance then you are ineligible for the head of household status.
Who is a Qualifying Person?
The list of qualifying persons is long so I’ll just list them out for you:
- Unmarried qualifying child: son, daughter, stepchild, foster child etc. who is under the age of 19 or under the age of 24 and a full-time student.
- Married qualifying child that you can claim as a dependent. (Example: your unemployed 18-year-old son and his 25-year-old Instagram model wife are living in your basement and eating all your food.)
- Your parents who depend upon you for more than half of their support: key-note, they don’t have to live with you. (Example: you pay for elder care for you mother who lives in an assisted living facility.)
- A direct relative who lives with you more than half the year and you upkeep the home. This can be a brother, sister, half-brother/sister, mother, father, grandparent, grandchild, niece, nephew, etc. Relatives who are not in that sphere of relatives are not considered a qualifying person (cousins, uncles, third uncle twice removed, my cousin Vinny, and this guy I knew from college are all examples of non-qualifying persons).
I Meet all 3… What do I Win?
One of the main perks of filing as head of household is the larger tax brackets – primarily on taxable income under $80,500. The tax rates remain the same for all filing statuses but the income level you need to reach before hitting the next tax bracket is extended for head of household and married filing jointly. For example, if you are a single filer then you’ll hit the 12% bracket at $9,525 while head of household won’t hit that same bracket until $13,600. In short, more income will be taxed at the lower rates.
The biggest change when it comes to dependents in 2018 is the elimination of the dependency exemption. For 2017 the dependency exemption is a $4,050 deduction from income and in 2018 this disappears entirely.
However, the enhanced child tax credit more than makes up for the difference when factoring in the loss of the dependency exemption, especially for higher income taxpayers.
Additionally, tax rates have been reduced and tax brackets have been expanded to include more income on the lower end of the tax rates. Head of household filers will benefit from this reduced rate and may see less money being taken out of their paychecks in 2018.
To know for sure if you qualify for the head of household filing status consult with a tax advisor.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer. Photo Copyright: <a href='https://www.123rf.com/profile_dolgachov'>dolgachov / 123RF Stock Photo