The best tax treatment goes to couples who file joint returns. Filing as head of household isn't quite as favorable, but it offers a better deal than filing a single or married-but-separate return.
The IRS has three tests for qualifying as head of household.
You must be unmarried for the tax year in question. If you're single on the last day of the year, you're an unmarried tax filer even if you only got a divorce on December 30. You're considered unmarried if your spouse didn't live in your house for the last six months of the year.. The IRS makes exceptions for military deployments and long hospital stays.
You must have paid more than half the cost of keeping up a home for the year. This includes rent, utilities, mortgage payments, food, repairs and maintenance, among other bills.
You must have a qualifying person living with you at least half the year. For example, a child or other relative you support and also claim as a dependent could count. If you're a custodial parent, you may qualify even if your ex gets the exemption. The rules for who qualifies are complex; IRS Publication 501 lays them out.
Don't jump to conclusions about whether you qualify. For example, if you live with your parent in her home but provide most of her financial support, that might make you the head of household in the eyes of the IRS.
Why Choose Head of Household
Figuring out if you qualify as head of household takes some work. You have to crunch numbers to see how much your home costs to keep up and how much you contribute. Watch out for several little rules, such as not including TANF — Temporary Assistance for Needy Families — payments when calculating your income.
Advantages of filing as head of household instead of single or married-but-separate include:
•A larger standard deduction.
•A better tax rate. For the 2014 tax year, for instance, a single or married-but-separate filer paid 10 percent on income up to $9,075, then 15 percent on income between $9,076 and $36,900. A head of household paid 10 percent on income up to $12,950 and 15 percent on $12,951 to $49,400. The rates change year to year.