Claiming 'Head of Household' Just Got Harder

By Albert B. Crenshaw
Sunday, January 15, 2006

When it comes to income taxes, a "dependent child" is a dependent child, yes? Well, yes, since 2004, when Congress more or less unified the five different definitions of the term.

So now the one definition applies when calculating head-of-household filing status, the exemption for a dependent, the child tax credit, the child and dependent care credit and the earned-income tax credit.

But the new definition in some ways tightens up the rules, particularly concerning head-of-household status, and not everyone will benefit. Already, tax preparers working with low- and moderate-income families and the elderly are finding that some of their clients who could file as heads of households in the past will not be able to do so on their 2005 returns.

That change would typically mean higher taxes because head-of-household status carries with it brackets that are much more favorable than those for single taxpayers.

One such group is single parents who have an unmarried, adult child living with them.

In the past, such parents could claim head-of-household status even if the child were older, had a lot of income and even if the parent could not claim a dependency exemption for him.

Under the new rules, the parent must be able to claim a dependency exemption for the child -- a "qualifying child" in tax jargon -- to qualify for head-of-household status. And for 2005, a child cannot be a qualifying child if he or she turned 19 by the end of the year (or 24 for a full-time student).

One tax preparer said recently that an elderly client who has been able to file as head of household in the past because her adult daughter lives with her will not be able to do that this year. The result will be instead of paying no tax, she may have to pay as much as $2,000 for 2005.

An older child might still be a "qualifying relative," enabling the parent to claim head-of-household status if certain other tests are met, but not if the child's income is over $3,200 a year.

Thus, the parent of an older child who has a reasonable amount of income may well pay more tax this spring.

Another group that may be affected is people with what Jackie Perlman, senior tax-research coordinator at H&R Block's world headquarters in Kansas City, Mo., called "complex family situations."

For example, she said, consider the case of an unmarried man and woman living together with the woman's young child. Such a situation is "pretty typical" of a lot of families H&R Block encounters, she said.

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