When Should Married Couples File Taxes Separately
- Tax liabilitiesThere are some scenarios where it may make more sense to file separately. One is if you have a specific reason to keep your tax liabilities independent. For a variety of reasons, divorcing or separated couples may not be willing to file their taxes jointly. Filing separately may also be appropriate if one spouse suspects the other of tax evasion. If this is the case, the innocent spouse should file separately to avoid potential tax liability due to the behavior of the other spouse. When you file jointly, you and your spouse are both responsible for all the information you report, so be certain that all details are completely accurate for both of you.
- Another reason is if one of you has a lot of itemized deductions that dont apply to the other person. For example, if you have out-of-pocket medical expenses that exceeds 7.5% of your adjusted gross income. If you file jointly and double your income, it will be a lot harder to write off those expenses.
- Owing on your taxesIf you choose to file separately because you or your spouse will owe money on your tax return, the IRS will not apply your refund to your spouses balance. That could be a way for you to get a refund. Your spouse may owe more, though.
Here’s How To Tell Whether Filing Separately Makes Sense For You
First comes love, then comes marriage, then comesfiling with the Internal Revenue Service . Every couple should file jointly to get the tax benefits of being married, right? Wrongmany couples don’t realize that filing separately might be the better move, in terms of tax strategies. In some instances, love doesn’t have a place in your tax return.
Student Loan Status Impacts How Couples File Their Taxes
As education becomes more expensive, Americans are turning to student loans to make it through college. However, limited income has left many people struggling to clear their student loans. There have been calls to cancel the debt. While the loan requires monthly repayment, borrowers in financial difficulty can get on income-based repayment plans. If one of the spouses is on this plan, it might be best to file tax returns separately to a bigger relief on repayments.
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Standard Deduction For Married Filing Separately
As a result of the Tax Cuts and Jobs Act of 2017, the standard deduction rose substantially in the 2018 tax year.
A standard deduction is the portion of income thats not subject to tax, thereby reducing taxable income. The IRS allows tax filers to take a standard deduction. However, the deduction amount is dependent on your filing status, age, and whether you are disabled or claimed as a dependent on someone elses tax return.
For the 2021 tax year, the standard deduction for single taxpayers and married couples filing separately is $12,550. For heads of households, the deduction is $18,800, while for married couples filing jointly, it is $25,100.
For the 2022 tax year, the standard deduction for single taxpayers and married couples filing separately is $12,950. For heads of households, the deduction is $19,400, while for married couples filing jointly, it is $25,900.
As a result, one spouse must have significant miscellaneous deductions or medical expenses for the couple to gain any advantage from filing separately.
If you and your spouse both generated taxable income, calculate your tax bill as a joint and separate filer before filing, to determine which of the two will save you more money.
When Filing Jointly Makes Sense
For most couples, filing taxes jointly once married makes sense. Couples who choose to do this will complete a single return together. Further, they must be aware that their combined income will be considered as a single unit. They must decide whether to itemize their deductions or take a standard deduction on this return. Fortunately, the IRS offers couples who file jointly one of the highest possible standard tax deductions. For tax year 2018, this standard deduction is $24,000twice that offered to those who are married but filing separately.
Couples who file jointly are also eligible for certain tax credits that those who are filing separately may not receive. Examples of these credits include the following:
- The child and dependent care tax credit
- The adoption credit
- Tax-free exclusion of U.S. bond interest and/or Social Security benefits
- The credit for the elderly and disabled
- The deduction for college tuition expenses and other higher education credits
- The student loan interest deduction
- Tax credits for Roth or Traditional IRA Contributions
When only one spouse is earning money from a job or other income source, filing jointly makes more sense. This scenario makes it easier for the spouses combined income to fit into a lower joint tax bracket. The couple may also take advantage of the non-earning spouses deduction when filing their return.
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Many Factors Affect How Much Tax You Owe When You File Your Return
One way to fill out your Form W-4 is to estimate your tax liability as closely as possible for the current year, and then have an amount as close to your liability as possible withheld throughout the year. If something changes during the year for example, if you quit a job or buy a house, you can estimate your tax liability again and make any necessary adjustments.
When To File Married Separate Taxes
When to file married separate taxes? You may want to file a Married Filing Separately tax return if one or more of the following situations apply to you: You and/or your spouse owe unpaid taxes or child support
When should I use married filing separately? If youre considered married on Dec. 31 of the tax year, then you may choose the married filing separately status for that entire tax year. If two spouses cant agree to file a joint return, then theyll generally have to use the married filing separately status.
What are the disadvantages of filing married filing separately? And while theres no penalty for the married filing separately tax status, filing separately usually results in even higher taxes than filing jointly. For example, one of the big disadvantages of married filing separately is that there are many credits that neither spouse can claim when filing separately.
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For Some Couples There’s A Difference In Paycheck Size And Medical Bill Deductions
For out-of-pocket medical expense deductions, the IRS requires that the bill must exceed 7.5 percent of the income. If filing jointly would increase the overall income and make a medical bill deduction ineligible, a married couple might make a strategic decision to file separately.
For example, one spouse makes $230,000 a year and the other makes $54,000 a year. If the lower-earning spouse incurs a medical bill of $13,000, the expense would qualify for deduction in separate filing since it represents 24 percent of the individual income. If the couple files together, the medical expense would only represent 5 percent of their overall income. As a result, it would be impossible for the couple to take advantage of the deduction.
When Filing Separately Make Sense
While filing jointly makes sense most of the time, there are occasions where it makes more sense to file your taxes separately. After all, each couples tax situation is unique. Two key examples of when it makes more sense for spouses to file separately include:
- When one partner has a substantial tax debt and the other does not.
- When one partner is eligible for a substantial deduction that could be limited by combining income and filing jointly.
There are non-financial reasons why a couple may opt to file separately, as well. For instance, if one spouse is unable or unwilling to sign a return, or the couple is separated pending a divorce, filing separately may have some practical advantages.
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Are You Penalized For Married Filing Separately
So, is it better to file jointly or separately? Do you get a tax penalty for filing separately? Technically, no, you are not penalized for filing separately. However, in practice, you are penalized in a way. You are not allowed to take advantage of many tax credits available to those filers who choose to file jointly. In addition, the deductions that you see from IRA contributions and other things are lower than those that joint filers can receive. So, while you technically receive no penalty for filing separately, you do receive a penalty in a way because you do not receive the same level of tax credits.
How Married Filing Separately Status Impacts Taxes
But MFS status can be somewhat more beneficial for taxpayers who want to claim the itemized deductions with income threshold requirements. The medical expense deduction is only available for the portion of your expenses that exceed 7.5% of your adjusted gross income as of the 2021 tax year, the return you’ll file in 2022. This can be a much lower threshold to meet on one income than on two combined incomes when you file jointly.
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Advance Payments Of The Child Tax Credit Have Already Started
The first advanced payments of the child tax credit began in July of 2021. Each month on the 15th, additional payments will come in. All that parents need is a bank account on file with the IRS, and payments should be automatically deposited into their account.
All indications are that the increased child tax credit will be made permanent, or at least extended through 2025. The Build Back Better plan could extend it for at least 2022. With this in mind, whether youre filing jointly with your spouse or separately, the Child Tax Credit Portal is the place to reduce overpayments, to prove eligibility for the expanded credit and to update your marital status or bank account information.
File Jointly For Bigger Deductions
It’s often advantageous to file taxes jointly because many tax deductions and discounts are double for married couples what they are for a single person.
For instance, if you sell your primary residence, the IRS allows a single filer to avoid taxes on up to $250,000 of the profit. But a married couple can exclude twice that amount $500,000.
Being married also increases the amount of many tax exemptions. The standard deduction, which is $12,200 for single filers, is $24,400 for a married couple double. Marriage also doubles the amount you can contribute to an IRA, 401 or other tax-advantaged retirement savings plan.
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Beware Tax Cheater Spouses
There is one potential huge drawback to filing jointly: As a general rule, when a married couple files a joint return each spouse is jointly and individually liable for the entire tax owed on the return. This means that either spouse can be required to pay the tax due, plus any interest, penalties, and fines.
A spouse can claim “innocent spouse relief” and avoid personally paying the other spouse’s taxes if he or she can show the IRS that: the understatement of tax was due to the other spouse, and the spouse did not know, or have reason to know, that there was an understatement of tax when he or she signed the joint return. However, both propositions can be hard to prove. You’ll avoid being personally responsible for your spouse’s taxes if you file a separate return. This is something you should seriously consider if you know your spouse cheats on his or her taxes.
The Disadvantages Of Filing Separately
There are a number of reasons why the status is seldom chosen by couples. The biggest reason is the forfeiture of a number of major tax credits and deductions that are available to those who file jointly, such as:
- Adoption credit
- All deductions and credits of every kind relating to education, such as the American opportunity and lifetime learning credits, student loan interest deduction, and tuition and fees deduction
- Traditional IRA deduction phaseout between a lower adjusted gross income range of $0-$10,000
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Tips For Maximizing Your Tax Savings
- Filing taxes no longer has to be stressful thanks to a number of user-friendly tax services. They can also help you find deductions or exemptions that you might have missed. We broke down the two most popular tax filing services, H& R Block and TurboTax.
- Consult a financial advisor if youre unsure how you should file or how your taxes will changed by filing jointly or separately. A financial advisor can also help you plan your finances now that you and your spouse will be sharing certain expenses. Finding a qualified financial advisor doesnt have to be hard. SmartAssets free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If youre ready to find an advisor who can help you achieve your financial goals, get started now.
- Once you file your taxes, you may learn that you have a big tax refund coming your way. Heres a refund schedule weve created to give you an idea when you can expect your money.
How Do I File A Separate Return
If you’re legally married at the end of the tax year, you can file jointly, but the IRS doesn’t limit you to the joint return. You can file either “Married filing separately” or “Head of household” depending on your circumstances. Filing as head of household allows you to claim the standard deduction even if your spouse itemizes deductions and allows you to claim additional credits such as the dependent care credit and earned income credit. The IRS may also tax you at a lower rate.
For you to be able to file as head of household, all of the following must be true:
- You paid more than half the cost of maintaining your home for the tax year. Maintaining a home includes rent, mortgage, taxes, homeowners’ insurance, utilities, and food eaten.â¢ Your spouse did not live with you for the last 6 months of the tax year.â¢ Your home was the main home of your child, stepchild, or eligible foster child for more than half the year.â¢ You could claim a dependent exemption for the child.
If you file as head of household, your spouse must file as married filing separately. Once you are divorced, you may still file as head of household if you pay more than half the cost of maintaining your home for the tax year and your children live with you for more than half the tax year.
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Youre Getting Divorced Or Are Separated
Filing jointly may not be in your best interest if you’re headed for divorce. You can avoid a joint tax bill or a joint refund by filing separately, in addition to skirting those liability issues. Your refund will be direct deposited into an account you select if you’re expecting one.
You may qualify to file as head of household if you have custody of your children and live separately from your spouse.
What To Do If One Spouse Is More Solvent Than The Other
It is quite common that one spouse can earn more than the other. So, in this case, it is better to file for a joint tax return as it can double your tax brackets. For example, one spouse earns the lions share of the familys income, and the other has no to low earnings. So, by filing a joint tax return, the earner ultimately benefits significantly by spreading the earnings over, which would be double their tax brackets.
At higher income tax levels, the difference cannot be seen as both of them may earn a million dollars. But someone who earns a hundred thousand dollars may be in a 24% bracket if they file individually. But if they file a joint married return, they might find themselves in a 12% bracket.
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Income Requirements For Married Filing Separately
Some people arent required to file a federal income tax return if they meet certain age and income requirements for their filing status. But most separate filers will have to file a federal income tax return.
Thats because the IRS requires people with a married-filing-separately status to file a return if their gross income was at least $5, regardless of age.
So where a married couple who are both younger than 65 and filing jointly wouldnt have to file unless their gross income was at least $24,800, if the same couple decides to use the married filing separately status, they would be required to file.
If youre married filing separately, you may have to include Social Security benefits as gross income in order to determine if youre required to file a return. Youll include a portion of your Social Security income if either of the following apply:
- You lived with a spouse at any time during the tax year.
- The combination of your gross income, any tax-exempt interest and half your Social Security benefits is more than $25,000.