When you do your 2021 tax return, you'll have to elect a filing status that suits your tax situation per the IRS requirements. Your choice matters since it determines the tax bracket you fall into and thus your marginal tax rate for the year. In addition, your filing status affects the credits and deductions you can claim since different income limits can apply and certain tax benefits may be unavailable for your filing status. Understanding all these effects will help you choose the most beneficial filing status on your tax forms.
Consider also: Which Form 1040 Do You Need for 2022?
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Your filing status also determines whether you need to file a federal tax return at all.
Exploring Your Filing Status Options
The IRS lets you choose from five filing status options based on specific criteria you meet at the end of the tax year. While IRS Publication 501 goes into great detail on each, here are the basics:
- Single: If the other filing status options don't fit your situation and you're unmarried by IRS standards when the tax year ends, you'd choose the single option.
- Head of Household: If you're not married and have a dependent child or another qualifying person for whom you provide over half their support, then you might claim head of household. Depending on the dependent's relationship, they may need to have physically resided in your home.
- Married Filing Separately: You'd use this filing status if you're married but decide to not do a joint return with your spouse.
- Married Filing Jointly: This is what you'd use to file jointly with your spouse. You can also use this for the tax year your spouse passes away.
- Qualifying Widow(er): If your spouse died during the tax year, you've got a dependent child and you didn't get married again, you could use this status for a couple of years after you could last use the married filing jointly status.
Consider also: How to Choose the Correct Filing Status
Considering Effects on Standard Deduction
If you're like the majority of U.S. taxpayers who choose the standard deduction rather than take itemized deductions, choosing the correct filing status on your tax return ensures you get the biggest standard deduction possible.
For 2021, the standard deduction amounts are $12,550 for single taxpayers and married couples filing separate returns, $25,100 for married taxpayers filing jointly and surviving spouses and $18,800 for head of household taxpayers. These will rise for the 2022 tax year to be $12,950 for single taxpayers and married couples filing separately, $25,900 for married couples filing joint returns and surviving spouses, and $19,400 for heads of household.
Your filing status can have another effect on your tax return if you're married and don't file a joint return. By being married and filing separately, if either of you itemizes, the other can't take the standard deduction. In that case, you'd want to make sure both of you have enough itemized deductions to surpass the standard deduction you'd otherwise be eligible for.
Consider also: What Does It Mean to Itemize Deductions?
Comparing Tax Filing Requirements
Your filing status also determines whether you need to file a federal tax return at all. That's because the IRS sets minimum income thresholds that often align with your filing status's standard deduction amount but can differ in some cases.
If you're married filing separately, your filing threshold is simply $5. However, your age at the end of the 2021 tax year affects the thresholds for the other statuses:
- Under 65: You'd simply file if your income doesn't exceed your filing status's standard deduction.
- 65 or older: The thresholds bump up to $14,250 for single filers, $20,500 for heads of household, $26,450 for qualifying widow(er)s and $26,450 for married couples filing jointly ($27,800 if your spouse is also 65 or older).
Note that dependents have their own tax filing requirements, so review Publication 501 if that applies to you.
Looking at Tax Bracket Effects
As a taxpayer, you'll encounter 10, 12, 22, 24, 32, 35 and 37 percent tax brackets for federal income taxes. However, income ranges for these brackets will depend on your filing status. Therefore, your election affects the rate your income ultimately gets taxed.
For example, say that you earned $40,000 during the 2021 tax year. In that case, you'd fall in the 12 percent tax bracket regardless of your filing status. However, if that income rose to $80,000, you'd find yourself in the 12 percent bracket as married filing jointly, while you'd fall in the 22 percent tax bracket if you were single, head of household or married filing separately. Especially for higher earners, that difference can add up.
In addition, your filing status affects the long-term capital gains tax rate – which would be zero, 15 or 20 percent – that you'd pay for gains on investments held a year. For example, a single filer or married couple filing separately would fall in the 15 percent bracket with $50,000 in income for the 2021 tax year. On the other hand, a married couple filing jointly, head of household and qualifying widower would fall in the 0 percent bracket with the same income.
Exploring Tax Credits Affected
The IRS has rules where certain tax credits only apply to taxpayers who don't file separately from their spouses. This means you'll want to carefully consider your tax filing status so that you can claim such credits and benefit from a lower tax liability or a bigger tax refund.
For example, being married and filing separately means losing access to the popular American Opportunity Credit and Lifetime Learning Credit for education costs, the Premium Tax Credit for health insurance costs and the Earned Income Tax Credit (EITC). You'd also have lower credit amounts for the Child Tax Credit and find it much tougher to get the Child and Dependent Care Tax Credit.
In other cases, your chosen filing status can affect credit eligibility when income limits apply. For example, you get the highest income threshold for the EITC when you're a married couple filing jointly than when you're a single person or use any other filing status.
Consider also: Tax Credit vs. Tax Deduction: What's the Difference?
Understanding Tax Deduction Limitations
Like with the tax credits, your filing status can take away access to certain tax deductions or put you subject to lower income limits to qualify for them.
For example, you completely lose access to the student loan interest deduction if you're married and file separately, while you'll have a lower income threshold with other filing statuses than if you're married filing jointly. You can only deduct half the maximum $3,000 in capital losses if married filing separately, and your possible IRA contribution deduction can get affected by a very low income threshold.
If you're one of the taxpayers claiming itemized deductions to reduce your taxable income, your filing status limits certain deduction amounts. For example, being married filing separately cuts your maximum state and local tax deduction to $5,000, limits your mortgage interest deduction to the first $500,000 of the mortgage and provides a lower income threshold for the mortgage insurance premium deduction.
Choosing Your Filing Status
Ultimately, you'll want to choose the filing status that fits your tax situation and offers the best tax breaks.
Since the IRS understands this decision might not always be clear, it offers a tool called "What's My Filing Status?" It looks at information about your marital status and dependents and provides you with the optimal filing status. At the same time, you'll see a list of potential tax credits that might help cut your tax bill.
It can also help to talk to a tax preparation professional. Not only can they assist with choosing a filing status, but they can offer tips on how to work toward reducing your taxes the entire year.
- IRS: IRS Provides Tax Inflation Adjustments for Tax Year 2021
- IRS: Topic No. 409 Capital Gains and Losses
- IRS: IRS Provides Tax Inflation Adjustments for Tax Year 2022
- IRS: Topic No. 501 Should I Itemize?
- Intuit TurboTax: Should You and Your Spouse File Taxes Jointly or Separately?
- IRS: Earned Income and Earned Income Tax Credit (EITC) Tables
- IRS: 2021 Instructions for Schedule A (2021)
- IRS: Topic No. 456 Student Loan Interest Deduction
- IRS: What Is My Filing Status?
- IRS: Publication 501 (2021), Dependents, Standard Deduction, and Filing Information
- IRS: Module 5: Filing Status
- H&R Block: How Much Do You Have To Make to File Taxes — What Is the Minimum Income to File Taxes?