While filing taxes during the 2023 season, the status option is critical in determining the documents you will require, deductions you are eligible for, credits you can benefit from and the actual tax you are supposed to pay. The tax filing status is a category that defines the type of tax return form you fill as a taxpayer. It is tied to your marital status.
Understanding tax filing status options
As a taxpayer, you must specify your tax filing status honestly to avoid any fraud or penalties. An individual’s tax bracket – the amount they should pay – is dependent on their status such as if they are married, how many children they have, their occupation and several other factors.
Importance of tax filing status
Tax brackets help in understanding what kind of taxes apply to you on the basis of your filing status. Tax brackets for various income tax statuses generally range between 10% and 37%. How you move from one range to another as a taxpayer critically depends on your filing status. If you choose the wrong filing status, you may be taxed inaccurately and end up more than you should.
Tax filing status options
As per federal income tax rules and regulations, a taxpayer falls into one of five categories: single, married filing jointly, married filing separately, head of household and qualifying widow(er) with dependent children. This tax filing status can have a major impact on your final tax bill and which tax forms you fill out in the end.
If a taxpayer is filing as single, then they are either unmarried, divorced, a registered domestic partner or legally separated as of the last day of the tax year.
Head of a household
This category includes those unmarried people paying at least half the cost of housing and support for other qualifying members of the same family. The head of a household or a person who is widowed may not fall under the “single” category for tax purposes. Furthermore, divorced taxpayers who don’t qualify for the status of the head of household must file their taxes as single.
Married filing separately
This option includes married high-earning couples who file separately, people who think their spouses may be hiding income or people whose spouses have tax liability issues. It often takes place when you are living separately from your spouse for an extended period, but you are still legally married.
Married person filing jointly or surviving spouse
An individual who is married by the end of the tax year can file tax returns jointly with their spouse. While filing jointly, couples are supposed to specify their respective incomes and deductions on the same tax return forms.
For many couples, filing jointly becomes significantly beneficial as it often reduces the amount both spouses owe as taxes. At the same time, there are additional tax benefits like education credits and earned income credits. These may not be available to married taxpayers who file separately. It is considered the best way to file your return because it usually means lower taxes.
Qualifying widow(er) with dependent child
If a taxpayer’s spouse dies during the year, the surviving spouse can generally use the joint filing status. They can file as a qualifying surviving spouse for the next two years. However, they may not be able to claim an exemption for the deceased spouse. They can still claim standard deductions for a married couple filing jointly.
Simplifying the tax filing status
There may be times when taxpayers find themselves eligible for more than one filing status. In such a scenario, they can opt for the status that allows them to owe the least amount of tax.
For instance, if a couple is divorced/separated and has a child dependent on them, they can file under three statuses. These are married filing jointly, married filing separately or head of household with a qualifying person. Assess all pros and cons of the tax filing statuses and ensure to go for the most beneficial for you.