There are four tax-filing statuses: Married filing jointly, married filing separately, head of household and single. In this post, the effects of married filing jointly, married filing separately and filing as head of household are discussed.
Married filing jointly typically results in a lower combined tax. The parties will include all their income, exemptions, deductions and credits on the return. In order for the return to be considered a joint return, both spouses must sign the return. By signing the return, both spouses become jointly and individually liable for the taxes that are due – even if the income was earned only by one spouse. While parties may agree to allocate the liability for taxes between themselves as part of the divorce decree, it is important for each party to be mindful that their agreement is not binding on the Internal Revenue Service. Even if both parties agree, and the judge orders, that either the husband or wife will be 100% responsible for the entire tax liability, the IRS can still require that the other party pay the tax liability.
Married persons may also elect to file separate returns. In that case, each spouse will report his or her share of the community income, exemptions, deductions and credits on his or her individual return. If one spouse itemizes deductions, the other spouse must also itemize deductions (and not simply use the standard deduction). Each spouse is generally liable only for the taxes due on his or her own return. Filing separately typically results in a higher amount of taxes owed because certain deductions and exemptions are not available to married taxpayers who file separate returns.
Filing as head of household can give the taxpayer many more benefits than filing separately. This status allows the taxpayer to include certain credits, exemptions and deductions that are generally not available to an individual filing separately. Also, it usually provides for a lower tax rate than filing as “married filing separately.” However, in order to qualify for this filing status, the party must meet the following requirements: (1) be unmarried or “considered unmarried” on the last day of the year; (2) paid more than half the costs of keeping up a home for the year; and (3) had a “qualifying person” (i.e., child) live with the taxpayer for more than one-half of the year. For purposes of filing as head of household, a person is “considered unmarried” if his or her spouse did not live in the home during the last six months of the tax year; the home was the main home of the qualifying dependent for more than one-half the year; and the taxpayer can claim an exemption for the child. In addition, the taxpayer must file a separate return.