Head of Household

If the marital status of the student and/or parents is inconsistent with the marital status reported on the FAFSA, that will represent conflicting information that must be resolved before aid can be disbursed. Financial aid administrators pay special attention to this because it is prone to error and abuse.

The definitions used by the US Department of Education and the IRS are not perfectly aligned, so it is possible that an apparent discrepancy will be resolved with no changes. For example, the IRS generally considers an informal separation (as opposed to a legal separation or divorce) to still be married and eligible for filing under either married filing jointly or married filing separate statuses. On the FAFSA, informal separation, legal separation and divorce all qualify for separated status. If the family claims to be informally separated, the school will want to see documentation that the couple did not cohabit (i.e., maintained separate residences), as no states permit a couple with an informal separation to continue living in the same house.

If the financial aid administrator determines that the marital status reported on the FAFSA is incorrect, the family will be required to correct the status on the FAFSA. If the financial aid administrator determines that the marital status reported to the IRS on the US Income Tax Return is incorrect, the family will be required to file an amended income tax return with the IRS. (This may also entail making changes to the FAFSA, since the amended income tax returns may change the AGI and tax liability.) If the family refuses to do this, they will not be eligible for aid, as federal rules prohibit the school from disbursing aid until conflicting information is resolved. Guidance from the US Department of Education has indicated that the school is expected to require the filing of an amended income tax return when there is an apparent error on the income tax return that affects student aid eligibility.

For example, page AVG-101 of the 2006-07 Application Verification Guide states:

For example, an FAA noticing that a dependent student’s married parents have each filed as “head of household” (which offers a greater tax deduction than filing as single or married) must question whether that is the correct filing status. Publication 17 explains on pp. 21-23 the criteria a person must meet to file as head of household. Resolution of the conflict may be a reasonable explanation of why there appears to be a conflict but is none, or the parents may refile and submit a copy of the amended return.

Head of household status is singled out for special mention because many tax preparers incorrectly encourage taxpayers to file with this status. Most married couples who file as head of household do so incorrectly. IRS failure to enforce the correct filing status is irrelevant.

To file as head of household, one must satisfy the following requirements:

• Be unmarried or considered unmarried on the last day of the year.
• Have paid more than half the cost of upkeep for a home for the year.
• Have a qualifying person live with you in the home for more than half the year.

With regard to the qualifying person, temporary absences due to school, military duty, illness, business travel or vacations do not prevent one from counting the individual as a qualifying person. Likewise, there are exceptions for a dependent parent who does not live in the home.

A couple is considered unmarried for IRS purposes if they did not live in the same home for the last six months of the year. Temporary absences do not count as living apart, however. If your spouse is a nonresident alien, you may be considered unmarried if you do not elect to treat your spouse as a resident alien. A nonresident alien spouse, however, does not count as a qualifying person.

IRS Publication 17 lists other requirements for an individual to be considered unmarried, such as their home being the main home of a child (natural, adopted or stepchild) for more than half the year or a foster child for the entire year. Either member of the couple must also be able to claim an exemption for the child.

A qualifying person cannot qualify more than one taxpayer as a head of household in a single tax year. The definition of “home of qualifying person” generally requires the person to have lived with the taxpayer for more than half the year. (This is similar to the definition used for determining the custodial parent for Federal student aid purposes.)

If an individual is a child, grandchild, stepchild or adopted child and is single, they are considered a qualifying person even if the taxpayer cannot claim an exemption for the child. In all other circumstances the taxpayer must be able to claim an exemption for the individual in order to count that individual as a qualifying person. If the child is a foster child, the child must have lived with the taxpayer for the entire year and the taxpayer must be able to claim an exemption for him or her. For an uncle, aunt, niece or nephew to be considered a qualifying person, they must be related to the taxpayer by blood and the taxpayer must be able to claim an exemption for him or her. Other qualifying persons include a parent, grandparent, brother, sister, stepbrother, stepsister, stepmother, stepfather, mother-in-law, father-in-law, half brother, half sister, brother-in-law, sister-in-law, son-in-law or daugther-in-law, where the taxpayer can claim the individual as an exemption.

Examples

1. Both parents of a dependent child file as head of household, but they are married and live in the same house. In such a situation, neither parent filed with the correct status, and they must file an amended income tax return before aid can be disbursed.
2. Both of the married parents of a dependent child file as head of household, but they maintain separate households and each has a qualifying person living with them. This occasionally occurs when the parents each have children from a previous marriage and have not yet had the opportunity to merge their households. For example, they might be maintaining separate households to permit the children to continue at the same secondary school without interruption, or they may work in different states. In such a situation, with appropriate documentation, amended income tax returns will generally not be required.
3. One parent files as head of household and the other doesn’t file an income tax return because their income was below the relevant IRS threshold. If they are married and living together in the same home, the parent who filed a return was not eligible to file as head of household. This parent would need to file as married filing separate, or the two would need to file as married filing joint. (Note that many of the education tax benefits are not available to taxpayers who file as married filing separate.)
4. The parents are divorced or have a legal separation, but are living in the same home and both filed as head of household. Since only one parent can provide more than half the upkeep of the same home, only one of them can file as head of household. Even if the custodial parent is the parent who provide more than half the upkeep, the other parent must file an amended income tax return since the two head of household filing statuses represents conflicting information that has not been resolved. (When a student’s parents are divorced, the custodial parent is the parent with whom the student lived the most during the twelve months ending on the FAFSA application date. If the student’s parents are still living together, so that the student lived with neither parent more, then it goes by whichever parent provided the student with more support. Often this is the same parent as provided more than half the upkeep of the home.) If the parents were living in separate homes and each had a qualifying person, then they might possibly be able to both file as head of household.
5. The parents have an informal separation, are living together and one or more of them files as head of household. The IRS does not consider an informal separation as unmarried. So they cannot file as head of household if they lived together. Moreover, state law does not allow a couple to have an informal separation and to continue to cohabit, so that would be additional conflicting information.
6. The parents are divorced or legally separated, live apart, and both file as head of household, but there appears to be only one child. Both parents cannot use the same qualifying person to justify their filing as head of household.
7. The parents are divorced or legally separated, live apart, and both file as head of household, but the children live with just one of the parents. The qualifying person must live with the head of household. This is not like exemptions, where a multiple support agreement can be used to trade off exemptions on odd and even years. If there is any question as to which parent a child lived with, the school will often refer to the address on record with the child’s secondary school if the child is a high school senior.

IRC Section 2: Head of Household

The term Head of Household is defined in Section 2 of the Internal Revenue Code, excerpted below.

Definitions and special rules

1. Definition of surviving spouse
   1. In general For purposes of section 1, the term “surviving spouse” means a taxpayer —
      1. whose spouse died during either of his two taxable years immediately preceding the taxable year, and
      2. who maintains as his home a household which constitutes for the taxable year the principal place of abode (as a member of such household) of a dependent
         1. who (within the meaning of section 152) is a son, stepson, daughter, or stepdaughter of the taxpayer, and
         2. with respect to whom the taxpayer is entitled to a deduction for the taxable year under section 151.
         For purposes of this paragraph, an individual shall be considered as maintaining a household only if over half of the cost of maintaining the household during the taxable year is furnished by such individual.
   2. Limitations Notwithstanding paragraph (1), for purposes of section 1 a taxpayer shall not be considered to be a surviving spouse —
      1. if the taxpayer has remarried at any time before the close of the taxable year, or
      2. unless, for the taxpayer’s taxable year during which his spouse died, a joint return could have been made under the provisions of section 6013 (without regard to subsection (a)(3) thereof).
   3. Special rule where deceased spouse was in missing status If an individual was in a missing status (within the meaning of section 6013 (f)(3)) as a result of service in a combat zone (as determined for purposes of section 112) and if such individual remains in such status until the date referred to in subparagraph (A) or (B), then, for purposes of paragraph (1)(A), the date on which such individual died shall be treated as the earlier of the date determined under subparagraph (A) or the date determined under subparagraph (B):
      1. the date on which the determination is made under section 556 of title 37 of the United States Code or under section 5566 of title 5 of such Code (whichever is applicable) that such individual died while in such missing status, or
      2. except in the case of the combat zone designated for purposes of the Vietnam conflict, the date which is 2 years after the date designated under section 112 as the date of termination of combatant activities in that zone.
2. Definition of head of household
   1. In general For purposes of this subtitle, an individual shall be considered a head of a household if, and only if, such individual is not married at the close of his taxable year, is not a surviving spouse (as defined in subsection (a)), and either —
      1. maintains as his home a household which constitutes for more than one-half of such taxable year the principal place of abode, as a member of such household, of —
         1. a son, stepson, daughter, or stepdaughter of the taxpayer, or a descendant of a son or daughter of the taxpayer, but if such son, stepson, daughter, stepdaughter, or descendant is married at the close of the taxpayer.s taxable year, only if the taxpayer is entitled to a deduction for the taxable year for such person under section 151 (or would be so entitled but for paragraph (2) or (4) of section 152 (e)), or
         2. any other person who is a dependent of the taxpayer, if the taxpayer is entitled to a deduction for the taxable year for such person under section 151, or
      2. maintains a household which constitutes for such taxable year the principal place of abode of the father or mother of the taxpayer, if the taxpayer is entitled to a deduction for the taxable year for such father or mother under section 151.
      For purposes of this paragraph, an individual shall be considered as maintaining a household only if over half of the cost of maintaining the household during the taxable year is furnished by such individual.
   2. Determination of status For purposes of this subsection —
      1. a legally adopted child of a person shall be considered a child of such person by blood;
      2. an individual who is legally separated from his spouse under a decree of divorce or of separate maintenance shall not be considered as married;
      3. a taxpayer shall be considered as not married at the close of his taxable year if at any time during the taxable year his spouse is a nonresident alien; and
      4. a taxpayer shall be considered as married at the close of his taxable year if his spouse (other than a spouse described in subparagraph (C)) died during the taxable year.
   3. Limitations Notwithstanding paragraph (1), for purposes of this subtitle a taxpayer shall not be considered to be a head of a household —
      1. if at any time during the taxable year he is a nonresident alien; or
      2. by reason of an individual who would not be a dependent for the taxable year but for —
         1. paragraph (9) of section 152 (a), or
         2. subsection (c) of section 152.
3. Certain married individuals living apart For purposes of this part, an individual shall be treated as not married at the close of the taxable year if such individual is so treated under the provisions of section 7703 (b).
4. Nonresident aliens In the case of a nonresident alien individual, the taxes imposed by sections 1 and 55 shall apply only as provided by section 871 or 877.
5. Cross reference For definition of taxable income, see section 63.

IRC Section 7703(b)

IRC Section 7703(b) defines the criteria for a couple to be considered unmarried:

1. Certain married individuals living apart
   For purposes of those provisions of this title which refer to this subsection, if —
   1. an individual who is married (within the meaning of subsection (a)) and who files a separate return maintains as his home a household which constitutes for more than one-half of the taxable year the principal place of abode of a child (within the meaning of section 152 (f)(1)) with respect to whom such individual is entitled to a deduction for the taxable year under section 151 (or would be so entitled but for section 152 (e)),
   2. such individual furnishes over one-half of the cost of maintaining such household during the taxable year, and
   3. during the last 6 months of the taxable year, such individual’s spouse is not a member of such household, such individual shall not be considered as married.

IRS Regulations

The regulations at 26 CFR 1.7703-1(b) expand the statutory requirements to include exceptions for temporary absences:

1. Certain married individuals living apart.
   1. For purposes of Part IV of Subchapter B of Chapter 1 of the Code, an individual is not considered as married for taxable years beginning after December 31, 1969, if (i) such individual is married (within the meaning of paragraph (a) of this section) but files a separate return; (ii) such individual maintains as his home a household which constitutes for more than one-half of the taxable year the principal place of abode of a dependent ( a ) who (within the meaning of section 152 and the regulations thereunder) is a son, stepson, daughter, or stepdaughter of the individual, and ( b ) with respect to whom such individual is entitled to a deduction for the taxable year under section 151; (iii) such individual furnishes over half of the cost of maintaining such household during the taxable year; and (iv) during the entire taxable year such individual’s spouse is not a member of such household.
   2. For purposes of subparagraph (1)(ii)( a ) of this paragraph, a legally adopted son or daughter of an individual, a child (described in paragraph (c)(2) of section 1.152-2) who is a member of an individual’s household if placed with such individual by an authorized placement agency (as defined in paragraph (c)(2) of section 1.152-2) for legal adoption by such individual, or a foster child (described in paragraph (c)(4) of section 1.152-2) of an individual if such child satisfies the requirements of section 152(a)(9) of the Code and paragraph (b) of section 1.152-1 with respect to such individual, shall be treated as a son or daughter of such individual by blood.
   3. For purposes of subparagraph (1)(ii) of this paragraph, the household must actually constitute the home of the individual for his taxable year. However, a physical change in the location of such home will not prevent an individual from qualifying for the treatment provided in subparagraph (1) of this paragraph. It is not sufficient that the individual maintain the household without being its occupant. The individual and the dependent described in subparagraph (1)(ii)( a ) of this paragraph must occupy the household for more than one-half of the taxable year of the individual. However, the fact that such dependent is born or dies within the taxable year will not prevent an individual from qualifying for such treatment if the household constitutes the principal place of abode of such dependent for the remaining or preceding part of such taxable year. The individual and such dependent will be considered as occupying the household during temporary absences from the household due to special circumstances. A nonpermanent failure to occupy the common abode by reason of illness, education, business, vacation, military service, or a custody agreement under which a child or stepchild is absent for less than 6 months in the taxable year of the taxpayer, shall be considered a temporary absence due to special circumstances. Such absence will not prevent an individual from qualifying for the treatment provided in subparagraph (1) of this paragraph if (i) it is reasonable to assume that such individual or the dependent will return to the household and (ii) such individual continues to maintain such household or a substantially equivalent household in anticipation of such return.
   4. An individual shall be considered as maintaining a household only if he pays more than one-half of the cost thereof for his taxable year. The cost of maintaining a household shall be the expenses incurred for the mutual benefit of the occupants thereof by reason of its operation as the principal place of abode of such occupants for such taxable year. The cost of maintaining a household shall not include expenses otherwise incurred. The expenses of maintaining a household include property taxes, mortgage interest, rent, utility charges, upkeep and repairs, property insurance, and food consumed on the premises. Such expenses do not include the cost of clothing, education, medical treatment, vacations, life insurance, and transportation. In addition, the cost of maintaining a household shall not include any amount which represents the value of services rendered in the household by the taxpayer or by a dependent described in subparagraph (1)(ii)( a ) of this paragraph.
   5. For purposes of subparagraph (1)(iv) of this paragraph, an individual’s spouse is not a member of the household during a taxable year if such household does not constitute such spouse’s place of abode at any time during such year. An individual’s spouse will be considered to be a member of the household during temporary absences from the household due to special circumstances. A nonpermanent failure to occupy such household as his abode by reason of illness, education, business, vacation, or military service shall be considered a mere temporary absence due to special circumstances.
   6. The provisions of this paragraph may be illustrated by the following example:
      Example. Taxpayer A, married to B at the close of the calendar year 1971, his taxable year, is living apart from B, but A is not legally separated from B under a decree of divorce or separate maintenance. A maintains a household as his home which is for 7 months of 1971 the principal place of abode of C, his son, with respect to whom A is entitled to a deduction under section 151. A pays for more than one-half the cost of maintaining that household. At no time during 1971 was B a member of the household occupied by A and C. A files a separate return for 1971. Under these circumstances, A is considered as not married under section 143(b) for purposes of the standard deduction. Even though A is married and files a separate return A may claim for 1971 as his standard deduction the larger of the low income allowance up to a maximum of $1,050 consisting of both the basic allowance and additional allowance (rather than the basic allowance only subject to the $500 limitation applicable to a separate return of a married individual) or the percentage standard deduction subject to the $1,500 limitation (rather than the $750 limitation applicable to a separate return of a married individual). See section 1.141-1. For purposes of the provisions of part IV of subchapter B of chapter 1 of the Code and the regulations thereunder, A is treated as unmarried.