Determining One’s Filling Status is the First Step in the Preparation of the 2020 Federal Tax Return
Edward A. Zurndorfer
With the official start of the 2021 tax season about a week away on February 12, 2021, many federal employees have started to prepare their 2020 federal income tax returns. By now, employees should have received their 2020 W2 and 1099 forms and other official tax documentation related to their 2020 income and deductions. Perhaps the first decision to be made in the preparation of one’s 2020 tax return is determining one’s tax filing status. This column explains the five tax filing statuses available for filing 2020 income tax returns.
There are five income tax filing statuses, namely: (1) single; (2) married filing joint; (3) married filing separate; (4) head of household; and (5) qualified widow. Each filing status is explained and discussed.
- Single. An individual is considered single if unmarried or separated from a spouse, either by divorce or a separate maintenance decree, as of December 31, 2020. A widow(er) whose spouse died before 2020 is single unless he or she meets the tests for qualifying widow(er) (see below under “qualifying widow(er)”).
- Married Filing Joint (MFJ). Two individuals may file jointly if, as of December 31, 2020, they are: (1) married and living together as husband and wife; (2) married and living apart but not legally separated or divorced; (3) married and living apart, but not legally separated under a decree of divorce or separate maintenance; (4) living in a common-law marriage that is recognized in the state where they currently reside or in the state where the common-law marriage began. If a spouse died at any time during 2020, then the surviving spouse may file as MFJ for 2020 provided the surviving spouse did not remarry before December 31, 2020. If the surviving spouse did in fact remarry before December 31, 2020, then the surviving spouse can file as MFJ with the new spouse. For federal tax purposes, the term spouse includes an individual married to a person of the same sex if the couple is legally married. But individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not considered a marriage are not considered married for federal income tax purposes.
- Married Filing Separate (MFS). An individual married at year end can elect to file as MFS. Either spouse may choose MFS status if they in fact want to be responsible for only their own federal income tax liability. But there are potential tax traps associated with the MFS filing status, including: (1) higher tax rates; (2) no childcare or higher education tax credits allowed; (3) no deductions allowed for tuition and fees deduction or student loan interest; and (4) itemizing is required if the other spouse itemizes. There are two reasons why a married couple may want to as file MFS, namely: (1) no joint liability. Each spouse who signs a joint return is responsible for the accuracy of the return as well as the payment of the tax. A spouse who files separately is not responsible for reporting or paying tax on items attributable to the other spouse. But there are some married couples who pay less overall tax when filing MFS. Tax brackets and standard deduction for MFS are one-half of those for MFJ. Spouses with equal incomes will generally have the same tax liability under MFS and MFJ. One exception is when one spouse has excessive medical expenses that must exceed 7.5 percent of the spouse’s adjusted gross income (AGI). the 7.5 percent of AGI will be less of a “floor” if the spouse files as MFS, likely resulting in more medical expenses being deductible and in less tax for that spouse.
- Head of Household (HOH). To qualify as HOH, an individual must meet all of the following tests: (1) the individual is not married at the end of the year except when a married individual can qualify as HOH by meeting the tests for being “considered unmarried”; (2) the individual paid more than half of the cost of keeping up his or her home during the year; (3) the individual is a U.S. citizen or resident during all of 2020; and (4) the individual’s home was the principal residence for more than half of 2020 of either of the following: (a) the individual’s qualifying child*, or (b) the individual’s qualifying relative** who is the individual’s dependent (see Table 1 at end of this article). However, two types of qualifying relatives do not count – a person who is a qualifying relative only because he or she was a member of the individual’s household the entire year, and a person who is a qualifying relative only because of a multiple support agreement. An individual and his or her qualifying person are considered to live together even if one or both of them are temporarily absent from the home due to special circumstances such as illness, education, business, vacation, military service or detention in a juvenile facility. It must be reasonable to assume that the absent person will return to the home after the temporary absence. The individual must continue to keep up the home during the absence. An individual may be eligible to file as head of household even if the qualifying person who qualifies an individual for the HOH filing status is born or dies during the year. To qualify for HOH filing status, the qualifying person must be one of the following: (1) the individual’s qualifying child or qualifying relative who lived with the individual for more than half the part of the year he or she was alive; or (2) the individual’s parent, for whom the individual paid for the entire part of the year the parent was alive, more than half the cost of keeping up the home the parent lived in.
- Qualifying Widow(er) (QW). The marginal tax rates and brackets for those individuals who qualify as QW are the same as the marginal tax rates and brackets for individuals who file as married filing jointly. All of the following tests must be met in order for an individual to file as QW for tax year 2020: (1) the individual’s spouse died in 2018 or 2019; (2) the individual was entitled to file a joint return (MFJ) for the year the spouse died; (3) the individual did not remarry before January 1, 2021; (4) the individual paid more than half the cost of keeping up his or her home; and (5) the individual’s home was the main residence for the entire year of the individual’s dependent child or stepchild.
Table 1. Summary of qualifications to be a qualifying child and a qualifying relative for tax year 2021
|Qualifying Child*||Qualifying Relative**|
|The child must:||The person must:|
|1. Be the individual’s child, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, or descendent of any of them||1. Not be the individual’s or anyone else’s qualifying child.|
|2. Be: (a) younger than the individual and either under age 19 or a full-time student under age 24; or (b) any age if totally and permanently disabled||2. Either: (a) live with the individual all year as a member of the household or (b) be related to the individual|
|3. Live with the individual more than half the year||3. Have a gross income of less than $4,300|
|4. Not provide more than half of his or her own support|
|5. Not be filing a joint tax return (unless filing a federal income tax return with a spouse as MFJ for the sole purpose of getting a refund)|
|6. Not be a qualifying child of another individual|
Edward A. Zurndorfer is a Certified Financial Planner, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While the employees of Serving Those Who Serve are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.