There’s a good reason many people want to claim head-of-household filing status with the IRS: It’s a great deal.

The head of household can claim a 50% larger standard deduction than single filers can ($18,650 vs. $12,400). They also benefit from wider tax brackets on lower income levels. For example, a head of household pays a 10% tax rate on income up to $14,100, compared to $9,875 for single filers, and 12% on income up to $53,700 vs. just $40,125 for single filers.

Head-of-household status also improves the terms for claiming various tax credits and raises the income threshold to qualify for economic impact payments, ($112,500, vs. $75,000 for single filers). It can give a major boost to a household with modest income.

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“If you’re eligible for it, it’s the best filing status,” said Adam Markowitz, an enrolled agent with Howard Markowitz PA CPA. “It’s typically intended to help single parents taking on the custodial role of two parents.”

The benefits of head-of-household status are clear enough. However, the issue becomes who is eligible to file as one and who is not.

Congress recently required tax preparers to get documentation that qualifies someone to be a head of household, because legislators believe many taxpayers are mistakenly claiming it.

“It’s easy to claim the status when you shouldn’t or miss the fact that you should be claiming it,” said Ed Zollars, a CPA with Thomas Zollars & Lynch. “Many people believe that if they are unmarried and have a dependent child, they are eligible.

“That’s not always the case.”

There are three key requirements to qualify as a head of household:

1. You are unmarried, recently divorced or legally separated from a spouse. That means you must have lived in a residence apart from your spouse for at least the last six months of the year. A separation because one spouse is away at school, working elsewhere or undertaking military service does not qualify. You have to file a separate tax return from your spouse even if you are still legally married.
2. You must pay more than half of the household expenses for the year in question. Per IRS Publication 501, those costs include rent, mortgage interest payments, property taxes and insurance, maintenance, utilities and groceries. Expenses such as clothing, education, medical treatment, vacations, life insurance and transportation are not included. “If you’re writing the checks and you’re not married, you probably qualify as head of household,” Zollars said.
3. You must live with a “qualified dependent” in your home for more than half the year. Those potential dependents include children, step-children, adopted or foster children, grandchildren or siblings. Children qualify as long as they are under 19 years old, or under 25 if they are a student and make less than $5,000 in annual income. Parents can qualify as a dependent as long as you pay more than half the costs of their living arrangements, whether in your home, their own home or a nursing home. They do not to have live under the same roof.

While the requirements seem clear, there are plenty of ways taxpayers can get it wrong.

Consider a parent who has moved in with their own parents — a not uncommon occurrence amid the pandemic. While they may have previously qualified as head of household, they may not now if they cover less than half the costs of the household.

“When you have three generations in a household, children can often be claimed by the wrong person,” Markowitz said. “It might be a grandparent who should be claiming head of household status.”

In the case of unmarried parents living in the same home with multiple children, it’s not uncommon for both to claim a dependent child and both to claim head-of-household status. It’s hard to argue for two heads of the household under one roof, given the expenses rule.

“It would seem impossible for two people to cover more than 50% of household expenses each,” Zollars said. “Whoever has the higher income is probably paying more than half the costs.”

It stands to reason that claims for head-of-household status made predominantly by lower-income taxpayers may not be a top tax enforcement priority for the IRS. However, the government has clearly flagged the issue, meaning that all taxpayers should be sure get their houses in order.

“People make mistakes on this all the time in both directions, and they get in trouble for it,” Markowitz said. “If you’re going to claim the head of household status, make sure you know what the law says — not what you think you heard about it.”