Cultural Competency and Taxes: Filing Status and Its Implications
Filing Status Categories
In this discussion, the following table displays the main choices for filing status on the tax return: Head of Household, Single, Married Filing Jointly, and Married Filing Separately. While there are other choices, these are the most commonly used. The blue boxes at the top tell least cost in taxes paid versus highest cost in taxes paid, according to how one chooses filing status. This could prove very important when considering cultural norms, as indicated below.
Head of Household - This filing status can only be used when it is a single parent with children. Many people erroneously choose this filing status if two people are married and one of the spouses chooses to stay home to take of the children in the family. The other error commonly made among many people of other countries is to choose this for married couples, because traditionally in many cultures, the man is the Head of the Household. This is not the same Head of the Household as the tax term Head of Household, which is very important to note. If you do not truly fit this tax term definition and file as Head of the Household erroneously, it could cost you in and audit and penalties plus interest, so make sure that if you file under this status, that you truly fit the tax term and not the cultural term.
Heads of Household pay the least tax, and while married filing jointly also pay the least taxes, when considering Head of Household in some cultures, the husband will file as Married Filing Separately, thinking that as the main breadwinner, filing the income separately will be more beneficial. Not so much, so just be aware to avoid getting a letter from the IRS.
Single With No Children - People who are single with no children are, well, not married and have no children. They pay the medium rate for taxes - higher than if they were married, but the tax code neither gives incentive nor penalty of any kind for those who remain single and childless.
LOW TAX RATE - Less Cost to You
MEDIUM TAX RATE
HIGH TAX RATE - Highest Cost to You
HEAD OF HOUSEHOLD - Single Parent with children
SINGLE - no children
MARRIED, FILING JOINTLY
MARRIED, FILING SEPARATELY
Married Filing Jointly vs. Married Filing Separately - Prior to discussing these two categories, it is first necessary to understand the institution and concept of marriage in ours and other cultures.
The Rules of Marriage - As of December 31st of any given tax year, your marital status determines your filing status for that tax year. For example, if you got married on December 15, 2013, although you were single for most of the year, as of December 31st, your filing status for tax year 2013 (TY2013), is Married.
In a heterosexual marriage, American women have traditionally taken the family name of their husband.
There are 13 states that recognize same-sex couples.
In Connecticut, Hawaii, Illinois, Iowa, Massachusetts, New Hampshire, New York, and Vermont, same-sex couples are recognized as married and can file as Married Filing Jointly or Married Filing Separately.
In California, Delaware, Washington, D.C, New Jersey, and Oregon, same-sex unions are recognized, but in these states they are required to file Married Filing Jointly only.
In traditional Hispanic culture, however, women do not take their husbands' names in the same manner. Alicia Morales can marry Javier Hernandez and become Alicia Morales de Hernandez legally, but refer to herself as Alicia Morales.
In many other European cultures, the women also keep their family names, thus indicating a married legal status, but separate in name.
So, What Should The Filing Status Be?
Due to this separate status and also ascribing to the idea that less reported means less taxes paid, in other countries where there is a tax structure, filing separately actually is more beneficial. However, in the United States, as is shown in the table above, the highest tax rate is paid by those who are married and filing separately - essentially the opposite.
Next in this series: Cultural Competency: What is Reportable Income?