In California, the Franchise Tax Board recently announced that it sent out more than 90,000 audit letters. The FTB wants to verify that taxpayers correctly used the “Head of Household” filing status on their 2013 tax returns.
Because many taxpayers misunderstand the head of household filing status, it is a common target of FTB and IRS tax audits each year. This filing status allows for a higher standard deduction and a lower tax rate than filing single. Fifteen percent of Californian taxpayers use this filing status.
In this post, we will review the rules for filing as head of household.
The Internal Revenue Service explains filing status rules in its Publication 17. For a taxpayer to file as head of household there are three main rules.
The first is that you were “considered unmarried” prior to the last day of the tax year. Meeting the considered unmarried test requires filing separate returns, living apart for at least six months, paying more than half the costs of the home upkeep and caring for a child, stepchild or foster child for more than half the year.
The second rule is that you paid at least half the cost of maintaining the home. You must have income coming in to purchase groceries and pay for rent or a mortgage.
The third rule gets a bit more complicated. You need to have a qualifying person live with you for more than one-half of the year. The IRS has a table that helps in determining whether someone is a qualifying person. Generally, a child or grandchild will satisfy the test. A mother, father or other relative may also be a qualifying person.
In the case that the FTB audits whether you claimed head of household correctly, you may need to provide more evidence to support the filing status. A tax attorney can explain what evidence may be sufficient and assist with a response.
Source: Sierra Sun Times, "California Franchise Tax Board Sends 'Head of Household' Audit Letters for 2013 Taxes," August 20, 2014.