16.3 Filing Status and Dependents

16.3 Filing Status and Dependents

REG Blueprint Area IV, Group E asks you to recall taxpayer filing status, recall relationships meeting the definition of dependent for purposes of determining filing status, and identify filing status given a specific scenario. Status is not a decoration on Form 1040. It sets the standard deduction in 15.3, the $3,000 versus $1,500 capital-loss ceiling in 16.1, several credits in 17.2, and whether a joint return is even on the table.

The five statuses

Determine marital status on December 31. A taxpayer married on that date is married for the year.

• Single. Unmarried (or legally separated under a decree of divorce or separate maintenance) and not qualifying as head of household or as a qualifying surviving spouse.
• Married filing jointly (MFJ). Married as of December 31, and the spouses elect a joint return. Both are jointly and severally liable. The year of a spouse's death is an MFJ year if the survivor is otherwise eligible and does not remarry before year-end.
• Married filing separately (MFS). Married, but the spouses file two returns. Some credits are unavailable, the capital-loss ordinary offset drops to $1,500, and if one spouse itemizes, the other generally must itemize.
• Head of household (HOH). See the tests below. HOH is better than single and is not a joint return.
• Qualifying surviving spouse (qualifying widow(er)). Available for the two years after the year of death — not for the year of death itself — if the survivor has a dependent child, did not remarry, paid more than half the cost of keeping up the home that was the child's principal residence for the whole year, and could have filed jointly in the year of death. The tax brackets and standard deduction match MFJ.

Head of household

HOH requires all of the following:

1. The taxpayer is unmarried or considered unmarried. A married taxpayer is considered unmarried if the spouse was not a member of the household for the last six months of the year, the taxpayer files a separate return, the taxpayer paid more than half the cost of keeping up the home, and the home was the principal residence of the taxpayer's child for more than half the year.
2. The taxpayer paid more than half the cost of keeping up a home for the year.
3. A qualifying person lived in that home for more than half the year — with one special rule for parents.

A qualifying person for HOH is generally a qualifying child, or a qualifying relative who is actually related (an unrelated person who is a member of the household all year can be a qualifying relative but does not make the taxpayer HOH).

Special parent rule. A taxpayer can file as HOH by maintaining a home that was the principal residence of a dependent parent, even if the parent does not live with the taxpayer. The taxpayer must pay more than half the cost of keeping up the parent's home, and the parent must be the taxpayer's dependent. That is the REG favorite.

Qualifying child versus qualifying relative

A dependent is a qualifying child or a qualifying relative. Status rules that require "a dependent" mean one of these, after the citizenship/residency overlay (generally a U.S. citizen, U.S. national, or resident of the United States, Canada, or Mexico).

Qualifying child (IRC §152(c)) — five tests:

A qualifying child is not subjected to a gross-income test. An 18-year-old with a $40,000 summer job can still be a qualifying child if the other tests are met.

Qualifying relative (IRC §152(d)):

• Not a qualifying child of any taxpayer.
• Either a specified relationship (including parent, grandparent, uncle or aunt, in-law, and the qualifying-child list) or a member of the taxpayer's household for the entire year (an unrelated person).
• Gross income for the year less than the indexed qualifying-relative threshold. AICPA will not test the dollar; the exam will give it or ask conceptually. Personal exemptions are $0; that does not repeal the gross-income test.
• The taxpayer provides more than half of the person's support.

Tie-breaker

When two people could claim the same qualifying child, IRC §152(c)(4) orders the claim:

1. A parent beats a nonparent.
2. If both are parents and they do not file jointly, the parent with whom the child lived the longer period during the year. If those periods are equal, the parent with the higher AGI.
3. If no parent can claim the child, the claimant with the highest AGI.

A written Form 8332 release of a child's dependency credit does not rewrite HOH for the noncustodial parent; HOH follows the home and the qualifying person, not the credit release.

Worked scenario: parent in a separate house

Facts. Sam is unmarried and does not qualify as a surviving spouse. Sam's mother lives in her own house all year. Sam pays more than half of the costs of keeping up that house (rent or taxes, utilities, insurance, and repairs). Mother's gross income is below the year's indexed qualifying-relative threshold. Sam provides more than half of Mother's support. Mother is not the qualifying child of anyone. No one else lives in Mother's house.

Analysis.

1. Mother is Sam's parent — a specified relationship. She is a qualifying relative: not a QC, gross-income test met, support test met.
2. Sam paid more than half the cost of keeping up Mother's home. Under the special parent rule, Mother need not live with Sam.
3. Sam is unmarried. Sam's filing status is head of household, not single.

If Sam had paid more than half of Mother's medical bills but Mother paid her own housing, Sam might still have a dependent and still be single, because HOH requires maintaining a home. If Mother's gross income exceeded the indexed threshold, Mother would not be a qualifying relative, the special parent rule would fail, and Sam would be single. If Sam were still married and living with a spouse, Sam would be MFJ or MFS, not HOH, unless the considered-unmarried tests were met.

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