Tax Unit: Module 5

1. Tax Unit: Module 5 Consumer Math Class East Jackson High School

2. Module 5: Filing Status Introduction • A taxpayer’s filing status determines the rate at which his or her income is taxed. • There are five filing statuses: • single • married filing a joint return • married filing a separate return • head of household • qualifying widow(er) with dependent child • Taxpayers who are eligible to use more than one filing status usually choose the filing status with the lowest tax rates.

3. Single Filing Status Taxpayers use the single filing status if, on the last day of the year, they • were never married, • were legally separated under a decree of divorce or separate maintenance, or • were widowed before January 1 of that year and were not remarried and have no dependents.

4. Married Filing a Joint Return Filing Status Taxpayers use the married filing a joint return status if they are married and both agree to a joint return This includes: • taxpayers who live together in a common-law marriage recognized by the state where the marriage took place, • taxpayers who live apart but are not legally separated, and • taxpayers whose spouses died during the year and who have not remarried. Both husband and wife must sign the income tax return. Special rules apply when a spouse cannot sign the tax return because of death, illness, or absence. Both husband and wife are responsible for any tax owed. The lowest tax rates apply to the married filing a joint return filing status.

5. Quick Check! Choose the appropriate filing status for each situation. • Andrew and Fiona were divorced on December 31. a. Single b. Married filing joint return • Eleanor and Garrett were married on December 31. a. Single b. Married filing joint return • Susan’s husband died on July 12 of this year. Susan has not remarried. a. Single b. Married filing joint return • Samuel’s wife died on November 25 of last year. Samuel has no children and has not remarried a. Single b. Married filing joint return • Which filing status has lower tax rates? a. Single b. Married filing joint return

6. Married Filing a Separate Return Filing Status • Married taxpayers may choose to file separately under the married filing a separate return filing status. • Each spouse prepares a separate tax return that reports his or her individual income and deductions. • Tax rates are highest for the married filing a separate return filing status. • Some taxpayers choose this filing status so that one spouse will not be responsible for the other spouse’s tax liability.

7. Head of Household Filing Status • Tax rates for head of household are lower than those for single taxpayers. • In general, taxpayers use head of household filing status if they • are unmarried or considered unmarried as of the end of the year, or • provide more than half the cost of keeping up a home for a qualified person for more than half of the year. (Dependent parents do not have to live with taxpayer.) • Keeping up a home includes rent, mortgage interest, taxes, insurance, repairs, utilities, paying for domestic help, and food eaten in the home. • Tax Tip: Caution! Do research or get professional advice before claiming head of household filing status. Make sure that the taxpayer meets all of the qualifications. Some of the qualifications are confusing.

8. Qualifying Widow(er) with Dependent Children Filing Status • Widows and widowers with one or more dependent children may be able to use the qualifying widow(er) with dependent child filing status. • Tax rates for qualifying widow(er) with dependent child and for married filing a joint return are the same. They are the lowest tax rates and usually result in the lowest total tax.

9. Conditions for the Qualifying Widow(er) with Dependent Child Taxpayers must meet all of the following conditions: • The spouse died within two years before the tax year in which the taxpayer is claiming this filing status. • The surviving spouse has not remarried. • In the year of death, the taxpayers were eligible to use the married filing a joint return filing status. • A child (including foster child, adopted child, or step-child) qualifies as a dependent for the surviving spouse. • The surviving spouse furnished over half the cost of keeping up a home that was the principal home of the child for the entire year. Amounts provided by Temporary Assistance for Needy Families (TANF) are not considered support paid by the surviving spouse.

10. Filing Status After Death of Spouse • Year of death = Married filing a joint return or Married filing a separate return • First year after death = Qualifying widow(er) with dependent child or single • Second year after death = Qualifying widow(er) with dependent child or single • Third and subsequent years after death = Head of household or single

11. Summary The following is a list of each filing status from lowest to highest tax rates. • Married filing jointly and Qualifying widow(er) with dependent child • Head of household • Single • Married filing separately

12. Quick Check! • A taxpayer has dependent children. The taxpayer’s spouse died last year. Prior to the death of the spouse, the taxpayer was eligible to use the married filing a joint return filing status. Which filing status will the taxpayer probably use this year? a. Married filing a separate return b. Married filing a joint return c. Head of household d. Qualifying widow(er) with dependent child • Peter and Anne are married and live together, but they are experiencing difficulties caused by Anne’s financial problems. Peter wants to be responsible for his own taxes, but he doesn’t want to have anything to do with Anne’s tax troubles. Which filing status should Peter and Anne use? a. Married filing a separate return b. Married filing a joint return c. Head of household d. Qualifying widow(er) with dependent child • Which filing status has the lowest tax rates? a. Single b. Married filing a separate return c. Head of household d. Qualifying widow(er) with dependent child

13. Review! • The filing status determines the number of dependents. a. True b. False • A taxpayer can be eligible for more than one filing status. a. True b. False • Married taxpayers must use the married filing a joint return filing status. a. True b. False • A widower can claim the qualifying widow(er) with dependent child filing status for five years after the spouse’s death. a. True b. False

14. Simulation for Module 5:Label, Filing Status, and Exemptions Section of the Tax Return • You are Joshua B. Bell. • You are an engineer • Last tax year, your wife, Alice died in an accident. • You are raising your two children: Jeremy (12) and Tara (8). They lived with you all year. • You are all U.S. citizens. • You pay all of the costs to maintain the home for yourself and two children. • You have not remarried. • Before Alice died, you used the married filing joint status.

15. More Information • It’s the end of the tax year. Your Form W-2 shows that you earned $53,268 from your job. • Jeremy and Tara did not earn any income during the year. • Social Security numbers • Joshua B. Bell 111-00-9876 • Jeremy C. Bell 222-00-8642 • Tara D. Bell 222-00-9753 • Your address: 23 Elm Street Anytown, US 10100

16. Dependency Tests for Jeremy and Tara Are the Dependent Tests Met for Jeremy and Tara? Relationship Test yes no Citizen Test yes no Joint Return Test yes no Age Test yes no Support Test yes no Residency Test yes no Can you claim Jeremy and Tara as dependents on your tax return? yes no

17. What is your filing status? Check through the criteria for each filing status and choose the best one for your situation. a. Single b. Married filing separate c. Married filing jointly d. Head of household (with qualifying person) e. Qualifying widow(er) with dependent child.

18. Use the previous information to fill out the top 3 portions of the 1040A Form

19. Joshua Bell’s Return

20. Congratulations! You have just successfully completed Module 5!!! All information came from the Internal Revenue Service Understanding Taxes Program www.irs.gov/app/understandingTaxes/jsp/S_student_lessons.jsp