Tax Treatment of Child living with unmarried parents

[rickwm]

An unmarried couple live together with their child. Each is a professional person with a comparable six-figure income. They own their home jointly and share all expenses. The child lives with them 100% of the time and all of the child’s expenses are shared equally. Both parent's names are on the child's birth certificate. Since they are not legally married, they cannot file a Married-Filing-Jointly tax return.

Assuming no other factors, how does the IRS determine which of them can legally file as Head-of-Household and which must file as single?

[xmasbaby0]

If the two parents cannot agree, you can use the IRS tie breaker rules.   But.....the child can be claimed as a dependent on only ONE of the tax returns.  The other parent must file as single and will not enter anything about the child on their return.

If you are a non-married couple who live together then only one of you can claim the child(ren) and the one not claiming the child does not enter anything at all on their tax return about the child. 

TIE BREAKER RULES

https://itap1.for.irs.gov/owda/0/resource/Commentary_Files_Redirect_ITA/en-US/help/tbrk09.html

[rjs]

"how does the IRS determine which of them can legally file as Head-of-Household"

One of the requirements for filing as head of household is that "You paid more than half the cost of keeping up a home for the year." Only the parent who paid more than half the cost of keeping up the home can file as head of household. The other parent obviously paid less than half. If they literally split all expenses exactly 50/50, to the penny, then neither one paid more than half the cost, so neither of them can file as head of household .

[rickwm]

Then what would be the point of the tie-breaker rules?

In this case, they really do pay all expenses equally, since they each contribute 50-50 to a common checking account they use to pay common expenses, and all expenses are paid from that account.

[xmasbaby0]

If you literally split it 50/50 to the penny---then neither of you can file as HOH since neither one of you can say you pay more than 50%.   You might want to take a long hard look at that, since the standard deduction for filing HOH is higher than the standard deduction for filing Single.     The parent who will claim the child can file as Single and claim the child.   The other one files Single and does not enter anything at all about the child on their return.

[Hal_Al]

You may decide between you will claim the child as a dependent. The tie breaker rules only apply if you can't agree.  In that case it's the parent with the higher income (AGI). 

Only the parent claiming the child can use the HOH filing status. Even then, that parent must have paid more than half the household expenses.  Technically, that requires you to do a little adjusting in your equal expense sharing to meet the >50% requirement. 

[rickwm]

OK, I understand all of the points made, and they make complete sense.  But let me make this a bit more complicated. 

 Assume the same facts as above -  that the couple has a common child and pays all expenses of the house and child equally.    But let’s modify this so that each parent also has a child from a prior marriage living in the house 50% of the time.  So in addition to splitting common house expenses and expenses for their common child 50-50, each parent also supports their own child from a prior marriage 100% for the time that child is in the house. 

Let's call the parents persons A and B.  They have the common child let's call Child AB and, as discussed, they split all of AB's expenses as well as the common house expenses 50-50.  But let's say Person A also has a child from a prior marriage – Child A - who lives in the home 50% of the time.  And Person B has their own child from a prior marriage – Child B - who also lives in the home 50% of the time   Person A pays 100% of their own Child A’s expenses while Child A is in the home and Person B pays 100% of Child B's expenses while Child B is in the home.   So how does this affect the HOH determination?    Without addressing the specifics of the agreements Persons A and B have with their ex-spouses regarding tax-reporting, can each now claim to be Head of Household since they are splitting all common expenses 50-50 but also paying the expenses of their separate children from the prior marriages?

[xmasbaby0]

You do not want to provide details/specifics of the support paid.  ....but the details matter.    There is no such thing as 50/50 custody.   One parent had child  A or child B for more than half the time.  The parent who had the child----whether we are referring to child A or child B-- for at least 183 nights is the custodial parent who can file as HOH for that particular child.  It is not just about what you pay "when" the child is in your home.    As far as the IRS is concerned, only the custodial parent can file as HOH when you are referring to a child of parents who are divorced or who live apart and share custody.   So if you want to file as HOH, you need a child who can be claimed as a qualifying dependent on your tax return.

[rjs]

@rickwm 

You have to make a distinction between the rules for filing as head of household and the rules for claiming a child as a dependent.

The requirement for filing as head of household is that you pay "more than half the cost of keeping up a home." The cost of keeping up a home is not the same as providing support for a dependent. Here's how IRS Publication 501 (page 😎 defines the cost of keeping up a home.

Costs you include. Include in the cost of keeping up a home expenses such as rent, mortgage interest, real estate taxes, insurance on the home, repairs, utilities, and food eaten in the home.

Costs you don't include. Don't include the cost of clothing, education, medical treatment, vacations, life insurance, or transportation. Also don't include the value of your services or those of a member of your household.

So, for example, clothing for a child is part of the child's support, but it is not part of the cost of keeping up the home. "The expenses of their separate children" does not affect the cost of keeping up the home.

It is never possible for two people living in the same home to both file as head of household because only one of them can pay more than half the cost of keeping up the home.

[xmasbaby0]

The other part you may be not "getting" is that in order to file as HOH, you must enter the SSN of the qualified dependent on your tax return.   The qualified dependent for HOH cannot be the same child on both of your tax returns.    You and your partner cannot enter the same SSN of your child (child AB) on each of your tax returns.  That SSN can only be entered on one tax return.    So.....the only way to file as HOH is to qualify as the custodial parent of either child A or child B and use that child's SSN on your tax return, saying that you and the other parent   (the other parent of child A or child B)  have a signed agreement regarding that child.   

You began this post by wanting to exclude any other factors-----but now want to bring in the issue of your other children.

You might want to consult a local paid tax professional.   

[Hal_Al]

You do NOT have to pay more than 50% of you child's expenses to claim that child as a dependent. 

There are two types of dependents, "Qualifying Children"(QC) and Other ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test.

The support test is different for each type. The support test, for a QC, is only that the child didn't provide more than half his own support. The support test for a Qualifying Relative is that the taxpayer provided more than half the relative's support.

A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:

1. He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
2. He did not provide more than 1/2 his own support. 
3. He lived with the parent (including temporary absences such as away at school) for more than half the year. "Living in the house 50% of the time" is not enough. That is, you must have physical custody (not legal custody). 

[rickwm]

I understand the points you're making about not being able to put the same child on two returns.  But let's assume Parent A is legally entitled to claim their own child A because their contract with their ex-spouse allows it and they do pay for all of that child's expenses while living in the house.  And Parent B can legally claim their child B because their particular contract allows it and they pay all of Child B's expenses.  So at minimum Parent A should be able to put their own child's SSN on their return and Parent B can legit put their child's SSN on their return.  So if the common expenses for the house and for child AB really are 50-50, then I assume the parent with the higher income would claim the child AB on the return.  Let's say that's Parent A.  But the HOH question is still unsettled.  If the expenses for AB and the common house expenses are really 50-50, then can the parties just make an agreement between them on which will use HOH on their return?  Let's say that's Parent B.  So then Parent A will have their child A on their return and the common child AB but will have to file as single?  Can you file as single but also list dependents without being an HOH?

[rjs]

"If the expenses for AB and the common house expenses are really 50-50 ..."

You're still lumping together expenses of the home and support for the child. Head of household depends only on the cost of keeping up the home, not support of any child. Reread my earlier post above about the cost of keeping up the home.

"... then can the parties just make an agreement between them on which will use HOH on their return?"

No, as I said earlier, only the one who paid more than half the cost of keeping up the home can file as head of household.

"Can you file as single but also list dependents without being an HOH?"

Yes.

[rickwm]

OK, all understood.  The bottom line seems to be that if the expenses contributing to the HOH are actually 50-50 - and in case, they claim to pay ALL house expenses from a common checking account to which they both contribute 50% - then it seems from a practical standpoint that the two of them will simply have to come to an agreement as to which will file as HOH with their respective dependents and which will have to file as Single.   I don't really see any other choice