Wider Tax Brackets
A tax bracket is an income range that determines your tax rate. Your tax rate increases as your income increases. Wider tax brackets for the head of household status means that the tax rate for some or all of your income will likely be lower than other filing statuses with the same income. Here are the tax brackets for 2022: Investments held over 12 -months are treated as long-term capital gains and are taxed at rates lower than ordinary income tax rates. Long-term capital gains tax brackets also give head of household filers an advantage over single and separate filers.
Who Is a Qualifying Person?
Not just anyone can be considered a qualifying person either. The IRS provides specific guidance on who fits into this category in Publication 501, Table 4. Your children, grandchildren, and parents can be considered qualifying persons if they meet certain criteria. Other relatives that don’t have to live with you such as niece or nephew, uncle or aunt, and in-laws may also be considered qualifying persons for the purpose of the head of household status.
What Costs Are Included in Maintaining A Home?
To figure out if you’re truly responsible for more than half of the household expenses, you have to know what expenses to include in your calculations. Here’s what’s typically included:
RentMortgage interestReal estate taxesHome insuranceRepairs and home maintenanceUtilitiesFood eaten in the home
On the flip side, you shouldn’t be including costs like clothing, vacation, education or medical treatment.
Example of Head of Household
To truly understand how the head of household status works, let’s use some examples.
Example 1:
Let’s say you’re a single parent who never married. You have one 10-year-old child who lives with you for the entire year except for when they attend summer camp each year for one month. Your roommate covers half of the monthly rent, but you cover the other half of the rent plus the utility bill, groceries, and home insurance. You would be considered head of household since you cover the majority of the household expenses. YPlus your qualifying person would be your young child.
Example 2:
In another scenario, you’re recently divorced and your ex-spouse moved out of the home seven months ago. During the divorce, your spouse was designated as the custodial parent so your child doesn’t live with you. Early in the year, your mother moved into your home due to her health problems and she’s now considered your dependent. You cover 100% of the expenses associated with the home. While your child might not be a qualifying person, your mother is since she’s a dependent relative. As long as you were considered unmarried by the last day of the year, you’d fulfill the unmarried requirement for head of household. With 100% of the home costs coming from your income, you would qualify for the head of household status.
Head of Household vs. Single Filers
Someone who’s unmarried could potentially file as single or head of household, but there are a few differences between the two filing statuses that you’ll want to know before opting for one over the other. To file as a head of household, you’ll need to meet certain requirements. Filing as a single taxpayer is for unmarried people who don’t fit into another tax status. There aren’t any other requirements to file as single other than being unmarried. Most times filing as single means that you’ll pay more in taxes compared to a head of household taxpayer with the same income. For example, under the 2023 tax brackets, a taxpayer with $50,000 in taxable income under a head of household filing status would be taxed at a rate of 12%. A taxpayer filing as single who makes $50,000 annually would be taxed at a rate of 22%. While the lower tax brackets are more generous to head-of-household filers, once you surpass a taxable income of $59,850 the tax rates begin to even out. For example, if two different families exist under one roof, but have completely separate lives and finances, then those two people might be able to claim head of household at the same address.
