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What filing status should I choose?

Your “filing status” helps determine how much taxes you owe and the size of your refund. There are 4 main options to choose from, but most new parents should be using Head of Household or Married Filing Jointly. We’ve outlined the key differences below, but you can use an interactive tool from the IRS to help you identify your status. 

 

Here are some of the key differences: 

  • Head of Household - For single parents or taxpayers who live with their child or another dependent and provide for them by covering more than half of costs of keeping up a home. Taxpayers who are married, but who lived apart from their spouse for the last 6 months of the year may use this status IF they are filing a separate return from their spouse, paid more than half the cost of keeping up the home, and live with their child. 

  • Single - For single taxpayers who are unmarried and will not have a child as of December 31, 2020. Parents who are unmarried and have a child who will be claimed by the other parent would also use this status. 

  • Married Filing Jointly  - For taxpayers who are married, live together, and will be filing taxes with their spouse. They may or may not have children. 

  • Married Filing Separately - For taxpayers who are married, and will be filing taxes separately from their spouse. This filing status means you miss out on many tax credits, so it should only be used if required. 

 

If your spouse is a nonresident alien, please see the FAQ below. 

 

If your spouse died in 2020, you will file as Married Filing Jointly or Married Filing Separately. If your spouse died in 2018 or 2019, you may be eligible to file as Qualifying Widower, but we encourage you to use the IRS tool to determine what filing status is best for you. 

What is earned income?

You may have noticed that many of the credits for new parents require having earned income. But what does that mean? 

 

Earned income is income provided for work either for an employer, as a contractor, or for yourself, and includes the following: 

  • Wages, salaries, tips, and other taxable employee compensation

  • Union strike benefits;

  • Disability retirement benefits received prior to minimum retirement age;

  • Net earnings from self-employment

 

Unemployment benefits, stimulus checks, child support, Social Security, Supplemental  Security Income (SSI) and TANF (i.e. Families First in TN) are NOT considered earned income. 

Can I amend my taxes from previous years?

Yes! You can amend or file taxes for the previous three tax years (so for prior years 2017, 2018, and 2019) if you realize you may have missed out on these credits. Email us at info@letsgetset.co and we can help you identify how to do this. If you are filing taxes for the first time, you can use one of our free and reliable tax prep partners. If you need to amend your taxes you often can return to the same provider you used to originally complete them. You will need to mail a paper copy of the 1040X to the IRS to do so.

Who qualifies as a dependent?

You can use this checklist to determine if you should claim a dependent on your taxes:

  • Are they a citizen or resident? The person must be a U.S. citizen, a U.S. national, U.S. resident, or a resident of Canada or Mexico. 

  • Are you the only person claiming them as a dependent? You can’t claim someone who takes a personal exemption for himself or claims another dependent on his own tax form.

  • Are they related to you? The child can be your son, daughter, stepchild, eligible foster child, brother, sister, half brother, half sister, stepbrother, stepsister, adopted child or an offspring of any of them.

  • Do they meet the age requirement? Your child must be under age 19 or, if a full-time student, under age 24. There is no age limit if your child is permanently and totally disabled.

  • Do they live with you? Your child must live with you for more than half the year, but several exceptions apply. Note that a newborn born anytime in 2020 would not need to have lived in the house for 6 months, and instead would just need to have lived there for more than half the time since birth. For example, if the child was born on December 31st and lives with mom and meets the other requirements, it would be considered a dependent. 

  • Do you financially support them? Your child may have a job, but that job cannot provide more than half of her support.

  • Are you the only person claiming them? This requirement commonly applies to children of divorced parents. Here you must use the “tie breaker rules,” which are found in IRS Publication 501. These rules establish income, parentage and residency requirements for claiming a child.

What kinds of benefits are taxable?

Here are the most common forms of taxable and nontaxable income:  

Taxable Income

  • Wages, salaries, bonuses, commissions

  • Gambling winnings

  • Self-employment income

  • Social Security benefits (a portion may be taxable) 

  • Unemployment compensation 

  • Taxable scholarships and grants

  • Tips and gratuities

  • Supplemental unemployment benefits

  • Social Security Benefits (some, but not all) 

 

Nontaxable Income 

  • Aid to Families with a Dependent Children (AFDC)

  • Child support

  • Social Security Benefits (some, but not all)

  • Supplemental Security Income (SSI) 

  • Temporary Assistance for Needy Families (TANF) - (i.e. Families First in TN)

  • Welfare payments (including TANF) and food stamps

  • Worker’s compensation