Who should or shouldn’t claim it
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There’s a good reason many people want to apply to the IRS for Head of Household Status: it’s a great deal.
The head of household can claim a 50% higher standard deduction than single registrants ($ 18,650 versus $ 12,400). You also benefit from broader tax brackets at lower income levels. For example, a head of household pays a 10% tax rate on income up to $ 14,100, compared to $ 9,875 for single registrants, and 12% on income up to $ 53,700 compared to just $ 40,125 for single registrants.
Head of household status also improves the eligibility conditions for various tax credits and raises the income threshold to qualify for economic impact payments ($ 112,500 versus $ 75,000 for individual applicants). It can give a big boost to a modest income household.
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“If you are eligible, this is your best sign-up status,” said Adam Markowitz, a registered agent with Howard Markowitz PA CPA. “It is usually intended to help single parents take on the custody role of two parents.”
The benefits of head of household status are obvious. However, it turns out who is eligible to submit as one and who is not.
Congress recently asked tax advisors to obtain documents qualifying someone to be head of the household because lawmakers believe many taxpayers falsely claim so.
“It’s easy to claim status if you shouldn’t or shouldn’t miss the fact that you should claim it,” said Ed Zollars, CPA, Thomas Zollars & Lynch. “Many people believe they are eligible if they are unmarried and have a dependent child.
“That is not always the case.”
There are three main prerequisites for qualifying as a Head of Household:
- You are unmarried, recently divorced, or legally separated from a spouse. This means that you must have lived in a dormitory outside of your spouse for at least the last six months of the year. Separation because one spouse is out of school, works elsewhere, or does military service is not qualified. You must file a separate tax return from your spouse even if you are still legally married.
- You have to pay more than half of the household expenses for the year in question. According to IRS Publication 501, these costs include rent, mortgage interest payments, property taxes and insurance, upkeep, utilities, and groceries. Expenses such as clothing, education, medical treatment, vacation, life insurance, and transportation are not included. “If you’re writing the checks and you’re not married, you likely qualify as the head of the household,” Zollars said.
- You must live in your home with a “qualified dependent” for more than six months. These potential family members include children, stepchildren, adopted or fostered children, grandchildren, or siblings. Children qualify as long as they are under 19 years of age or under 25 if they are a student earning less than $ 5,000 in annual income. Parents can be considered dependent as long as you pay more than half of their living expenses, be it at your home, at home, or in a nursing home. You shouldn’t live under one roof.
While the requirements seem clear, there are many ways taxpayers can go wrong.
If you want to claim head of household status, make sure you know what the law says – not what you think you are hearing.
registered agent at Howard Markowitz PA CPA
Imagine a parent who moved in with their own parents – a not uncommon occurrence amid the pandemic. While they may previously have qualified as head of the household, they may not be able to do so now if they are covering less than half the household expenses.
“When you have three generations in one household, children can often be claimed by the wrong person,” said Markowitz. “It could be a grandparent who should claim head of household status.”
For unmarried parents who live in the same house with multiple children, it is not uncommon for both to claim a dependent child and both to claim head of household status. Given the cost rule, it is difficult to argue for two heads of household under one roof.
“It seems impossible for two people to each cover more than 50% of the household expenses,” Zollars said. “Whoever has the higher income will likely pay more than half the cost.”
Obviously, claims to head of household, made predominantly by lower-income taxpayers, may not be a top priority for the IRS in enforcing taxation. However, the government has clearly identified the problem, which means that all taxpayers should be sure that their homes are in good order.
“People make mistakes in both directions all the time and get in trouble for it,” said Markowitz. “If you want to claim head of household status, make sure you know what the law says – not what you think you heard about it.”