Tax Benefits for Families: Recent Changes for the Head of Household Filing Status

Tax Benefits for Families: Recent Changes for the Head of Household Filing Status

Order Code RS22520
October 17, 2006
CRS Report for Congress
Received through the CRS Web
Tax Benefits for Families: Recent Changes for
the Head of Household Filing Status
Christine Scott
Specialist in Tax Economics
Domestic Social Policy Division
Summary
To file a federal income tax return as a head of household, a taxpayer must meet
three basic requirements. The taxpayer must (1) be unmarried (or considered unmarried)
at the end of the tax year; (2) pay more than half of the costs of keeping up the
taxpayer’s home for the tax year; and (3) have a qualifying person live with the taxpayer
for more than half of the tax year.
The Working Families Tax Relief Act of 2004 (P.L. 108-311) created a more
uniform definition of a child for tax purposes, beginning in tax year 2005, by defining
a qualified child and qualified relative. As part of these changes, P.L. 108-311 altered
several tax provisions used by families, including the requirements for head of
household filing status, to reflect the new definitions of a qualified child and qualified
relative.
During the recent tax filing season (for tax year 2005), some taxpayers who in
previous years filed their federal income tax returns as heads of household discovered
that they are no longer eligible to do so. Instead they had to file as single taxpayers.
There is an advantage to filing as a head of household (instead of filing as a single
taxpayer) because the standard deduction is larger and the tax rate schedule is more
favorable.
Head of Household Filing Status
For a given level of income, and with everything else being equal, a taxpayer’s
federal income tax liability will depend upon the taxpayer’s filing status. This is because
the standard deduction and tax rate schedule vary by filing status.1 As shown in Table
1, the standard deduction for the head of household filing status is larger than for the
single filing status. The table also shows the level of taxable income subject to a 10% rate
1 For more information on federal income tax rates, see CRS Report RL30007, Individual Income
Tax Rates: 1989 through 2007, by Gregg A. Esenwein.
Congressional Research Service ˜ The Library of Congress

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or a 15% rate is higher for a taxpayer filing as a head of household than for a taxpayer
filing as a single taxpayer. The tax rates on taxable income vary by filing status until
taxable income is greater than $336,550 (in tax year 2006).
Table 1. Standard Deduction, 10% and 15% Tax Rate Brackets by
Filing Status for Tax Years 2004 through 2006
Standard
Filing Status
10% Rate Bracketa
15% Rate Bracketb
Deduction
Tax Year 2004
Single
$4,850
$1 - $7,150
$7,151 - $29,050
Head of Household
$7,150
$1 - $10,200
$10,201 - $38,900
Tax Year 2005
Single
$5,000
$1 - $7,300
$7,301 - $29,700
Head of Household
$7,350
$1 - $10,450
$10,451 - $39,800
Tax Year 2006
Single
$5,150
$1 - $7,550
$7,551 - $30,650
Head of Household
$7,550
$1 - $10,750
$10,751 - $41,050
Source: Table prepared by the Congressional Research Service.
a. Amount of taxable income subject to a 10% tax rate.
b. Amount of taxable income subject to a 15% tax rate.
For a taxpayer to file a federal income tax return using the head of household filing
status, the taxpayer must meet three basic requirements. The taxpayer must (1) be
unmarried (or considered unmarried)2 at the end of the tax year; (2) pay more than half
the cost of keeping the taxpayer’s home for the tax year; and (3) have a qualifying person
live with the taxpayer for more than half of the tax year.
Number of Heads of Household. For tax year 2004, there were 19.6 million
tax returns filed using the head of household filing status.3 This represented 14.9% of all
tax returns filed for tax year 2004. Data for tax year 2005 on the number of head of
household returns and total returns are not yet available.
2 A married person may be considered unmarried for head of household filing status if the person
filed a separate tax return (from his or her spouse); paid more than half of the cost of keeping up
his or her home; the person’s spouse did not live with the person for at least the last half (six
months) of the tax year; the person’s home was the primary residence of the person’s child,
stepchild or eligible foster child; and the person could claim an exemption for the child.
3 Internal Revenue Service, Individual Income Tax Returns, Publication 1304, Table 1.2.

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Recent Changes
The Working Families Tax Relief Act of 2004 (P.L. 108-311) created a more
uniform definition of a child for tax purposes. This affected the definition of a qualifying
person for head of household filing status beginning in tax year 2005.4 As a result of the
changes, some taxpayers, beginning in tax year 2005, were no longer able to file their tax
returns using the head of household filing status. The most significant difference is for
taxpayers who claim head of household filing status on the basis of a child, stepchild, or
grandchild. The other two requirements for head of household filing status were not
affected by P.L. 108-311.
Table 2 shows the qualifying persons (by relationship) requirement for the head of
household filing status for tax year 2004 and tax year 2005 (and later tax years).
Child, Stepchild, or Grandchild. In tax year 2004, a taxpayer’s child, stepchild,
or grandchild had only to be unmarried to be a qualifying person (in addition to living
with the taxpayer more than half of the tax year). Beginning in tax year 2005, to be a
qualified person for head of household filing status, the child, stepchild, or grandchild
must meet the requirements of a qualified child for the personal exemption. The two
additional requirements are (1) age — under age 19 at the end of the tax year, or 24 if a
full-time student (however, there is no age limitation if the child is permanently and
totally disabled); and (2) support — the child could not provide more than half of his or
her own support for the tax year.5
For example, in tax year 2004, an unmarried taxpayer would have been able to file
a federal income tax return using the head of household filing status if the taxpayer’s 40-
year-old son (regardless of his income) lived with the taxpayer for more than half of the
tax year. Beginning in tax year 2005, however, this same taxpayer would not have been
able to file a federal income tax return using the head of household filing status as the 40-
year-old son did not meet the age requirement, and therefore was not a qualifying child
of the taxpayer. The taxpayer could claim the son as a qualified relative if the son lived
with the taxpayer for more than half the tax year, and if the taxpayer could claim an
exemption for the son (see the notes at the end of Table 2 for an explanation of the
exemption rules for tax years 2004, 2005, and later).

Sibling, Step Sibling, or Half Sibling. In tax year 2004, to be a qualifying
person, a sibling (brother or sister), half sibling (half brother or half sister), or step sibling
(step brother or step sister) must have lived with the taxpayer for more than half of the tax
year and the taxpayer must have been able to claim an exemption for the person.
Beginning in tax year 2005, the person must meet the requirements for either a qualifying
child or qualifying relative (for whom the taxpayer can claim an exemption). The
requirements for a qualified relative are essentially the same as the previous law
requirement for siblings. In other words, as a qualifying relative, the sibling must live
with the taxpayer for more than half of the tax year, and the taxpayer must be able to
4 For more information, see CRS Report RS22016, Tax Benefits for Families: Changes in the
Definition of a Child, by Christine Scott.
5 Ibid.

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claim the sibling as a dependent. If the sibling meets the requirements of a qualifying
child and is unmarried, however, the taxpayer does not need to be able to claim an
exemption for the sibling.
Parents. In tax year 2004, for the parent of a taxpayer to be a qualifying person,
the taxpayer must have been able to claim the parent as a dependent.6 However, a
dependent parent does not have to live with the taxpayer. This was unchanged by P.L.
108-311.
Foster Child. In tax year 2004, to be a qualifying person, a foster child had to live
with the taxpayer all year, and the taxpayer had to be able to claim an exemption for the
child. Beginning with tax year 2005, a foster child placed with the taxpayer by an
authorized placement agency or by any judgement, order, or court decree, who meets the
other requirements for a qualifying child (including living with the taxpayer for at least
half the tax year) is a qualifying person for head of household filing status.
Other Relationships. Persons with relationships to the taxpayer other than those
above — grandparent, stepmother, stepfather, mother-in-law, father-in-law, brother-in-
law, sister-in-law, son-in-law, daughter-in-law — may also be a qualifying person for
purposes of the head of household filing status. In tax year 2004, for a person with one
of these relationships to a taxpayer to be a qualifying person, they had to live with the
taxpayer, and the taxpayer had to be able to claim an exemption for that person. The
requirements for these relationships to be qualifying persons for head of household filing
status were not changed by P.L. 108-311. For the aunt, uncle, niece, and nephew
relationships, in tax year 2004, there was the added requirement that the person had to be
related to the taxpayer by blood. P.L. 108-311 provided that aunt, uncle, niece, and
nephew relationships, beginning in tax year 2005, were no longer required to be blood
relationships.
6 Ibid.

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Table 2. Head of Household Filing Status — Qualifying Person
Requirements by Relationship to Taxpayer,
Tax Years 2004 and 2005 (and later)
Relationship
Tax Year 2004
Tax Year 2005 (and later)
Son, daughter,
— lived with the taxpayer
Meet the definition of a qualified child:
stepchild, or
more than half the tax year;
— lived with the taxpayer more than half the tax
grandchild
and
year;
— is unmarried (if married
— was under age 19 at the end of the tax year (or 24
the taxpayer must be able to
if a full-time student), with no age limit if the child
claim an exemption for the
is permanently and totally disabled;
child).a
— did not provide more than half of his or her own
support; and
— is unmarried (if married, the taxpayer must be
able to claim an exemption for the child).a
or
meet the definition of a qualified relative:
— lived with the taxpayer more than half the tax
year; and
— the taxpayer can claim an exemption for the
person.b
Brother, sister,
— lived with the taxpayer
Meet the definition of a qualified child:
stepbrother,
more than half the tax year;
— lived with the taxpayer more than half the tax
stepsister, half
and
year;
brother, or half
— the taxpayer must be able
— was under age 19 at the end of the tax year (or 24
sister
to claim an exemption for the
if a full-time student), with no age limit if the child
person.a
is permanently and totally disabled;
— did not provide more than half of his or her own
support; and
— is unmarried (if married, the taxpayer must be
able to claim an exemption for the child).b
or
meet the definition of a qualified relative:
— lived with the taxpayer more than half the tax
year; and
— the taxpayer can claim an exemption for the
person.
Father or
— the taxpayer must be able
the taxpayer must be able to claim an exemption for
mother
to claim an exemption for the
the person.b
person.a
Aunt, uncle,
— lived with the taxpayer
— lived with the taxpayer for more than half the tax
nephew or
more than half the tax year;
year; and
niece
— is related to the taxpayer
— the taxpayer can claim an exemption for the
by blood; and
person.b
— the taxpayer can claim an
exemption for the person.a

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Relationship
Tax Year 2004
Tax Year 2005 (and later)
Foster child
— lived with the taxpayer all
Meet the definition of a qualified child:
tax year; and
— lived with the taxpayer more than half the tax
— the taxpayer can claim an
year;
exemption for the child.a
— was under age 19 at the end of the tax year (or 24
if a full-time student), with no age limit if the child
is permanently and totally disabled;
— did not provide more than half of his or her own
support;
— is unmarried (if married, the taxpayer must be
able to claim an exemption for the child)b;
and
— was placed with the taxpayer by an authorized
placement agency, or by decree or other court order.
Grandparent,
— lived with the taxpayer
— lived with the taxpayer for more than half the tax
stepmother,
more than half the tax year;
year; and
stepfather,
and
— the taxpayer can claim an exemption for the
mother-in-law,
— the taxpayer can claim an
person.b
father-in-law,
exemption for the person.a
brother-in-law,
sister-in-law,
son-in-law,
daughter-in-
law
Source: Table prepared by the Congressional Research Service
a. For tax year 2004, for a taxpayer to claim an exemption for a person (other than a spouse or
child), the person must have a relationship to the taxpayer or be a member of the taxpayer’s
household; be a U.S. citizen or resident; not file a joint tax return with another person; have
gross income of less than the exemption amount; live with the taxpayer all of the tax year; and
have more than half of his or her support provided by the taxpayer. The requirement for gross
income below the exemption amount does not apply to the taxpayer’s son, stepson, daughter,
stepdaughter, adopted child, or foster child who lived with the taxpayer all year.
b. For tax year 2005, for a taxpayer to claim an exemption for a person, the person must be a U.S.
citizen or resident; not file a joint tax return with another person; meet the requirements for a
qualifying relative or qualifying child. To be the qualifying relative of a taxpayer, a person
cannot be the qualifying child of another taxpayer; must have a relationship to the taxpayer or
live with the taxpayer all year; must have gross income of less than the exemption amount; and
have more than half of his or her support provided by the taxpayer. To be the qualifying child
of a taxpayer, a child must be the taxpayer’s child, stepchild, eligible foster child, sibling, step
sibling, half sibling, or descendant of any of them; under age 19 (24 if a full-time student) at
the end of the tax year; live with the taxpayer for more than half the tax year; not have provided
more than half of his or her own support; and if the child is the qualified child of more than one
person, the taxpayer must be the person entitled to claim the child as a qualifying child. There
is no age limitation if the child is permanently and totally disabled.