What Filing Status Should You Use on your Taxes?
If you’ve never filed taxes before, or you have a more “complicated” situation, the appropriate filing status is a critical question that determines how much you will owe in taxes. This is because each status affects your “standard deduction”, or how much tax-free income you have.
There are four filing statuses: Single, Head of Household, Married Filing Jointly, and Married Filing Separately.
1. Single
This one is easy. If you are a single person, who is unmarried, with no dependents, then you file as single. Generally, you pay more in taxes than HOH and MFJ. Let’s assume you make a gross income of $25,000. If you file Single, then your standard deduction is $12,550 in 2021. Subtract your standard deduction from your gross income, and you get $12,450, which is your taxable income.
2. Head of Household
If you are not married, but you have dependents (such as a single parent), then you can claim HOH as a filing status. Let’s assume you make a gross income of $25,000 but you have a small child. If you file HOH, then your standard deduction is $18,800 in 2021. Subtract your standard deduction from your gross income, and you get a taxable income of $6,200. Lower taxable income means less taxes paid.
There are special considerations for people who are legally separated or married to a noncitizen, and those should be discussed with a tax professional.
3. Married Filing Jointly
If you are married and want to file together, then you basically put two standard deductions together. In 2021, the MFJ standard deduction is $25,100. Let’s assume you and your spouse make a gross income of $25,000. Subtract your standard deduction from your gross income, and you get a taxable income of zero (the IRS does not allow negative taxable income, as such). This means that this couple should get a full refund of any federal income tax paid on job income.
4. Married Filing Separately
If you are married and want to file separately, then each of your tax outcomes will be the same as if you filed as Single. This means that both of you will pay higher taxes (generally).
You may be wondering why a couple would do this. There are a few reasons that may tilt your decision one way or the other. When you file MFJ, both of you are liable for the return, so if one spouse is being, let’s say, dishonest with their taxes, both spouses are liable. Here, it can be better to file MFS. Sometimes, however, people just want to keep all their finances separate and just file separately.
The decision on how to file your taxes is personal, and depends on a variety of factors. If you need help navigating the decision, then a tax professional would be the person to go to.
One last thing to note: if you are married, you can only file MFJ or MFS. You cannot file HOH or single. If you are married and have two kids, you cannot both file HOH. Don’t lie to the IRS.