If you filed your California tax return using the Head of Household (HOH) status, then be prepared get a letter in the mail from your friendly Franchise Tax Board (FTB). The FTB has announced that it intends to mail approximately 90,000 letters out to taxpayers who claimed Head of Household status for the 2013 tax year. The letters should be arriving between August and December 2014. The letter will inform taxpayers as to why their filing status is being reviewed and request that they complete a questionnaire along with a response due date. Failure to respond timely to the letter could result in the FTB denying the Head of Household status and assessing additional tax and imposing a 25% penalty on the additional tax. Questions include:
- The status of the relationship of the person you are claiming qualified you for head of household, including son, daughter, stepson or stepdaughter, grandchild, brother, sister, half-brother, half-sister, stepbrother, stepsister, nephew or niece, eligible foster child, father, mother, stepfather or stepmother etc.
- The social security number, name and age of the qualifying person;
- Ascertaining whether the qualifying persons gross income was less than $3,900 in 2013;
- Ascertaining whether more than half of the support for the qualifying person came from you in 2013;
- Asking whether the qualifying person was a full time student for at least five months in 2013;
- Ascertaining whether the qualifying person lived with you for the entire year in 2013;
- If the qualifying person lived less than the entire year, the reason why the qualifying person did not live with you full time;
- Asking whether the qualifying person was a foster child or a child placed with you by a placement agency or by a court judgment, decree or order;
- Whether or not the qualifying person was married or in a Registered Domestic Partnership (RDP) as of 12/31/2013;
- Whether you lived with your spouse or RDP at any time during 2013.
In order to meet the requirements to be allowed to use the Head of Household filing status, you must be either unmarried and/or not in a Registered Domestic Partnership (RDP) on the last day of the year; paid more than one half of the cost of keeping the home for more than one half of the year for yourself and the qualifying person; the qualifying person must have been a citizen or U.S. national or a resident of the U.S., Canada or Mexico and the qualifying person must not have filed a joint federal or state return with his or her spouse or RDP.
Keep in mind that a child can qualify only one of their parents for Head of Household status and that parent must meet all of the above requirements. Often times, both parents attempt to claim the child as a dependent, particularly in cases of divorce. That leads to unnecessary confusion and costly fees to straighten out and correct. Additional information may be obtained at CA FTB Public Service Bulletin 14-23 8/13/2014.
Finally, remember that if the FTB changes your filing status, that change will affect your federal IRS tax return as well potentially leading to more taxes and penalties. So when your FTB letter arrives in the mail, ensure that it is answered promptly.
Sources: CA FTB Public Service Bulletin 14-23 8/13/2014; Checkpoint Newstand 22 August, 2013 California – Personal Income Tax – Head of household audit letter – 2013 tax year