Tax Tip: Rise of cohabiting parents may not be mirrored in tax return

October 23, 2014 : H&R Block

By The Tax Institute at H&R Block

With the busiest birth months behind, there are millions of new parents and new babies – who create millions of new tax deductions for their parents to figure out. But a new trend impacting many of these families will bring an increased level of tax complexity to those already facing sleepless nights. While births have declined overall, an increasing percentage of births are to cohabiting couples. In fact, for the first time, cohabiting births exceed single-parent births. But in many ways, the tax code has not mirrored this trend, giving parents more to figure out than just what brand of diaper to buy.

Married couples can claim their children and related tax benefits by filing jointly, but cohabiting parents do not have the option to file jointly, even if they share expenses and responsibility for their children. These couples do have the option of choosing which one of them may claim each child, but only one of them may claim each child for any given year. If they have more than one child, they may each claim a child but they cannot both claim the same child. If the parents can’t decide who will claim their children, tax law dictates the person with the higher adjusted gross income will claim them.

Cohabiting parents must quantify the impact of this decision on their individual and combined tax liability to figure out which filing option will give them the best overall benefit. But this calculation may be complicated. Couples will need to know the different child tax benefits available, how they interact with other tax provisions and how to make them fit their situation.

Who Should Claim the Child?

Whoever claims the child will potentially qualify for related child tax benefits, such as head of household filing status, the child’s dependency exemption, the child tax credit, the credit for child and dependent care expenses and the earned income tax credit – in total worth thousands of dollars in potential tax breaks.

Imagine a couple with one parent earning significantly more than the other. The higher-income parent may want to claim the child in order to get head of household filing status and the child’s exemption to lower her taxable income and tax rate. However, the lower-income parent may want to claim the child in order to claim the earned income tax credit and get a larger refund. Depending on the exact situation, either arrangement may be to the parents’ overall advantage.

What Filing Status Should Cohabiting Parents Use?

Rather than both parents using the single filing status, which will limit certain tax benefits, one of the parents will likely qualify to file as head of household. Filing as head of household will increase that parent’s standard deduction from $6,100 (for single filers) to $8,950 and will usually lower their tax rate. In this situation, a taxpayer must pay more than half the cost of household expenses and maintenance for the year to qualify to use the head of household filing status.

What Tax Benefits Can Cohabitating Parents Claim?

Unmarried parents get the same tax benefits as married taxpayers, but the qualifications and income thresholds may differ. But again, only one person can claim benefits for a child – two cohabitating parents cannot share them unless they are married filing jointly.


If a cohabitating couple has more than one child or a child related to only one of them, their tax complexity will increase. But cohabiting couples should not shy away from mastering this complexity. If they understand what tax rules apply, run the numbers and estimate their taxes before filing, they will achieve a better tax outcome.

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