One of the most misinterpreted tax terms in the U.S. tax code is “head of household,” so we’re here to tell you what it actually means. If circumstances permit a head of household status, there are two noteworthy tax advantages: a higher standard deduction and reduced effective tax rates that apply to almost all income brackets. Great, but only if you meet the requirements.

There are three specific rules to qualify for the head of household status:

1. You are not married
2. You pay half of the cost to keep up your home
3. There is a qualifying person living with you for at least half the year

So, what does it actually mean?

First, you must be unmarried or considered unmarried on the last day of the year. Unmarried means single, divorced, or legally separated per a court order. You can also be considered unmarried if you are legally married, but you and your spouse are separated and live in different residences for the last half of the year.

Second, you need to support yourself. You do this by showing that you provide at least half the cost to keep up your home. The IRS offers a worksheet to help you calculate this, but the idea is to add household costs and determine that you pay more than half annually. For example,

Costs to include:

• Rent
• Mortgage interest
• Property taxes
• Homeowners insurance
• Repairs
• Utilities
• Food eaten in your home

Costs not to include:

• Clothing
• Education
• Medical expenses
• Vacations
• Life insurance
• Transportation

Finally, a qualifying person lives with you for at least half the year. This can be the most complicated of the three requirements. Essentially, you must have a dependent that you support. So, if you can claim a person as a dependent and they live with you for at least six months during the year in question, you probably meet this requirement. Beyond your son or daughter, a qualifying person can also be a sibling, parent, grandchild, grandparent, or other relative. There is also a special rule for caring for a parent. You may be eligible as head of household even if your parent doesn’t live with you, as long as you provide more than half the cost of keeping up their home.

Do I qualify as the head of household?

Making the right decision on filing status can save you thousands of dollars in taxes, but you have to know the rules. If you have questions regarding your current situation or have a life change that may qualify you for the head of household filing status, please contact our RRBB advisors.