The modern American family comes in all different shapes, sizes and types. On the very same street, you might find a married couple with two young children, a grandmother raising a grandchild, a single father with a teenage daughter, and an older couple taking care of an elderly aunt. The Internal Revenue Service (IRS) requires all Americans who earn income to pay federal income tax, but it charges a lower tax rate to unmarried individuals who are the primary financial support of children, parents and other relatives. For tax filing purposes, these individuals are called heads of household.
Heads of household pay a significantly lower tax rate than single filers. For example, in 2011, the 15 percent tax bracket for single filers covers all income from $8,500 to $34,500. For heads of household, the 15 percent bracket extends to $46,250. Likewise, the 25 percent tax bracket is capped at $83,600 for single filers, but stretches to $119,400 for heads of household [source: Tax Foundation].
According to the IRS, you should file a tax return as a head of household if you're unmarried and pay more than 50 percent of the cost of keeping up a home for yourself and a dependent or other qualifying individual [source: Internal Revenue Service]. On the surface, this sounds simple enough, but this is the IRS we're talking about, so let's break down each requirement in more detail.
First, you need to be unmarried or "considered unmarried" on the last day of the tax year. Unmarried means you were never married or are legally divorced. "Considered unmarried" is a little trickier. You are considered unmarried if your spouse didn't live with you for at least half of the year. That excludes "temporary absences" like education (college, for example), illness and military service. If you and your spouse have a dependent child, the child must live with you for more than half the year. You and your spouse must also file separate returns [source: Internal Revenue Service].
Secondly, you must pay more than 50 percent of the cost of keeping a home for you and your dependent(s). To figure this out, you need to add up the total cost of maintaining the home, add up your contributions and see if you pay more than half of the total. Expenses to include are:
You shouldn't include costs like clothing, education, medical expenses, transportation or vacations.
What else do you need to qualify as head of household? Find out on the next page.
Do you need a child to be head of household?
Lastly, to qualify as a head of household, you need to have a dependent, either a qualifying child or another qualifying relative. For IRS purposes, a qualifying child is your biological child, a stepchild, an adopted or foster child, or any younger relative, including brothers and sisters, half-brothers and stepsisters, even nieces and nephews [source: Internal Revenue Service]. The child must be 18 or younger (23 or younger if a full-time student) and you must claim the child exemption on your taxes. The child must also live in your home for at least 6 months of the tax year [source: Internal Revenue Service].
Dependents can also be relatives other than children. If you pay more than 50 percent of a relative's total support for the year, and that person lives with you for at least half of the year, then that person is your dependent for IRS purposes. To calculate total support, include the following expenses:
Please note, however, that if a relative earns more than $3,700 in gross annual income, even from Social Security benefits, he or she no longer qualifies as your dependent [source: Internal Revenue Service].
Confused yet? Welcome to the tax code.
For lots more information on income taxes, the Internal Revenue Service and ways to avoid an audit, explore the links on the next page.
I admit, up until the minute I began researching this article, I had no idea what it meant to qualify as a head of household for tax purposes. I'm so dense, all I could ever picture was a giant head floating above a house. But now it sort of makes sense. Yes, the IRS should charge a lower income tax rate to people who are burdened with supporting a child or other relative on their own. The next time I'm tempted to complain about the "married filing jointly" tax rate, I'll be more thankful that I have a spouse that supports me in many more ways than financially.
- Internal Revenue Service. "Head of Household" (April 1, 2012.) http://www.irs.gov/applications/wh/helpdocs/hoh.html
- Internal Revenue Service. "Publication 501" (April 1, 2012.) http://www.irs.gov/publications/p501/ar02.html
- Tax Foundation. "U.S. Federal Income Tax Rates History, 1913-2011." September 9, 2011 (April 1, 2012.) http://www.taxfoundation.org/publications/show/151.html