The U.S. tax return is a complicated document to fill out, and many times people incorrectly file on their status or claim a dependent that does not qualify. Perhaps they do not claim a dependent they could have. Do they even need to file? This is a quick guide on getting started with your tax return.
Who must file?
The following chart is based on the 2020 filing year, and is subject to change yearly:
You may have noticed the married filing separately was a low threshold. This plays into a caveat for those married filing jointly: If the taxpayer did not live with the spouse at the end of the year (in this case 2020), if the taxpayer made $5, then the taxpayer must file regardless of their age.
Who qualifies as a dependent?
Well that depends! To claim a dependent, they must pass all three parts of the test: First, if married filing jointly, and one of the spouses can be claimed as a dependent, then neither can claim a dependent. Second, the dependent must have been a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico, for some part of the year, AND the dependent does not file a joint tax return unless they are claiming a refund. Third, the dependent must either be a qualifying child or qualifying relative.
A qualifying child must be all the following:
1. Is the dependent the taxpayer’s child, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, or descendant of any of them?
2. Is the potential dependent younger than the taxpayer and either under the age of 19 or under 24 and a full-time student, or permanently and totally disabled?
3. Did the dependent provide less than half of his or her support?
4. Did the dependent live with the taxpayer for more than half of the year?
A qualifying relative must pass all of the following tests:
1. Did the taxpayer provide more than half of the dependent’s support?
2. Was the dependent any of the following?
a. Taxpayer’s child, stepchild, eligible foster child, or descendant of any of them.
b. Taxpayer’s brother, sister, niece, or nephew.
c. Taxpayer’s parent, parent’s sibling, grandfather, or grandmother.
d. Taxpayer’s stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, mother-in-law, brother-in-law, or sister-in-law.
e. Any other person who lived with the taxpayer all year as a member of the taxpayer’s household.
3. Is the dependent not a qualifying child of another taxpayer?
4. Did the individual have a gross income of less than $4,300?
There are also additional filing requirements for things like taxes owed for Alternative Minimum Taxes, if the taxpayer received a Health Savings Account distribution, made at least $400 if self-employed, made $108.28 from a church organization, as well as a few other rules.
What is my filing status?
There are 5 filing statuses:
1. Single
2. Married Filing Jointly (MFJ)
3. Married Filing Separately (MFS)
4. Head of Household (HOH)
5. Qualifying Widow(er) (QW)
Every taxpayer falls into one of the above 5 categories. Married couples can elect to file MFS; however, MFS loses several benefits compared to MFJ. Despite losing some of the benefits, there are some scenarios where filing MFS is more advantageous than MFJ. These scenarios are unique, but for our firm, the most common occurrence with one spouse makes significantly more money. This is not always a case, but sometimes it is.
So which categories do you fall into? Generally it is pretty intuitive; however, there are some complicated rules surrounding these which may lead some people to believe they are in one category, but are actually in another. The next blog post will discuss in more detail the rules for the filling statuses.
This blog is made available by Kameron W. Mazurek, PLLC, for educational purposes only, and not to provide specific tax or accounting advice. This blog does not create a CPA-client relationship between you and Kameron W. Mazurek, PLLC. This blog should not be used or considered as a substitute for competent tax or accounting advice. If you have any questions about this topic, please contact us.