Being married gives you the option to choose your filing status, you can either file Married Filing Jointly or Married Filing Separately.
Why should I choose Married Filing Jointly?
Depending on your tax situation Married Filing Jointly may get you bigger refunds and smaller tax bills. Most married couples choose to file with the status of Married Filing Jointly. Although in some tax situations there may be an advantage to using the filing status of Married Filing Separately. Continue reading to find out more about Married Filing Separately and how it affects your tax status.
Married Filing Separately Explained
If you decide with your spouse to us the tax status of Married Filing Separately you both must file your own return, this includes individual income, deductions, exemptions and credits. When you do this, you are only responsible for your own tax liability. Any taxes, penalties or interest that results from your spouse’s return will not be your responsibility.
How to File as Married Filing Separately
If you do not elect to file a joint return with your spouse and you are required to file a tax return you must use the Married Filing Separately status. If you are not married by the IRS definition then you may qualify for the Head of Household status.
When should I choose Married Filing Separately over a Joint Return?
You might want to consider Married Filing Separately if any of the following is applicable to you:
- Your spouse or yourself have taxes that have been unpaid or owe back child support. If you file a joint return the IRS may offset your refund to pay for these past obligations.
- Your spouse or yourself have student loan payments that are repaid based on income. Your repayment amount will be based on your own income instead of the combined household income.
- If you are going through a divorce and your spouse might be withholding information regarding their taxes that may result in you incurring penalties.
- Your spouse or yourself have substantial medical expense, this can be especially helpful if yourself or your spouse has a lower AGI.
- You are not residing in property that is considered owned by the community. This is regarding as common property owned by both spouses.
- Your spouse and yourself are considered to earn high yearly income.
How do I know if I qualify for Married Filing Separately?
In general, if you are eligible to file with a Married Filing Jointly status you can choose to use the status of Married Filing Separately. Although you must agree with your spouse that you are filing separate returns.
What Are the Benefits of Filing Separate Returns?
Generally, when you file a joint tax return you can expect larger refunds and lower tax liability, over filing two separate returns. Although there are some reasons you or your spouse might want to take advantage of by filing separate returns.
You are only responsible for your tax bill. Doing this will allow you to file a separate tax return from your spouse and keeps both of your tax liability separate. If you decide to file a joint returned you will have one tax bill combined and if either you or your spouse owe taxes you will both be responsible for them.
One other reason to file a separate return if is you do not know your spouse’s previous tax filing, if they have evaded filing taxes or cheated on past tax returns you can insulate yourself from any liability by filing a separate return. When you file with the Married Filing Separately status you are held responsible for any penalties, fines, back taxes or interest our spouse may owe.
If your spouse owes things such as back child support payments, student loan payments or back taxes you may want to shield yourself and your own refund by filing a separate return. If you file a joint return the IRS can take any refund to cover any money that may be owed on these items. When you file joint returns even your portion of the refund is eligible to be forfeited when your tax liability is included with your spouse.
Though not a common occurrence, you may get a larger refund or owe less in taxes if you file a separate return from your spouse.
Bigger Refunds with Married Filing Separately
Though it’s not generally the norm, some situations when you file a separate return may generate a larger refund. Each situation is different, so there’s no specific set of rules regarding lowering your tax liability by filing separately, but for taxpayers who have itemized deductions that are limited by AGI, filing separately may benefit you.
For example, medical expenses are limited to a deduction that exceeds 10% of your AGI, so by not combining your income with your spouse’s, you’ll be able to deduct more expenses. Similarly, investment expenses and employee business expenses, which are limited to 2% of your AGI, can be deducted in larger amounts with a separate return.
If you have the option of choosing how to file your return, you’d be wise to compare the benefits of each filing status, including the amount of deductions you are able to take, and determine which is the better status to use, regarding providing the biggest benefit.
Cons of Married Filing Separately
Should you choose to file a separate return, you may be limited in the benefits you can claim. This means that the tax calculations for separate filers is typically higher than taxes calculated on joint returns. Taxpayers who file separate returns will be subject to certain tax limitations including:
- Itemizing deductions – if your spouse choses to itemize, you aren’t able to claim the standard and deductions and will be required to itemize as well.
- Standard deduction – Should you be eligible to claim the standard deduction, it will be half of the amount of what it would be if you filed jointly
- Tax rate – Your taxation rate is higher in most cases when you file separate returns.
- Alternative Minimum Tax – the exemption amount is cut in half when filing a separate return.
- Child Credit – You are not able to claim the credit for child and dependent care expenses, and your income exclusions amount for employer assistance program is limited to half of what it would be if you filed jointly. There is an exception to this standard if you are legally separated or living separately from your spouse which may allow you to still claim the credit when filing a separate return.
- Earned Income Credit – you’re not eligible to claim the Earned Income Credit if you file a separate return.
- Adoptions – You can’t claim credits for adoption expenses, including the Adoption Tax Credit and employer-provided benefits can’t be excluded from your income.
- Education Credits – You can’t claim the American Opportunity Credit or Lifetime Learning Credit.
- Student Loans – You can’t claim deductions for student loan interest.
- Interest from Bonds – You’re not able to exclude interest from savings bonds used for education expenses from your income.
- Disabled/Elderly – you can’t claim credits for elderly or disabled if you lived with your spouse at any point through the tax year.
- Social Security – You have to include up to 85% of Social Security benefits in your income if you lived with your spouse at any point during the year.
- Child Tax Credit – credit amount cut in half for separate returns.
- Saver’s Credit – limited to half of the amount available to joint filers
- Loss Deduction – amount allowed for capital loss deductions is limited by 50% of the amount available to joint filers
- Retirement Contributions – if you lived with your spouse during the year, you may not be able to deduct contributions to a traditional IRA, provided your income is over a certain amount. The income threshold is considerable lower than that of joint filers.
- Rental Loss – You can’t deduct losses from rental real estate if you lived with your spouse. If you lived separately, you can deduct the loss, but the limit is much lower.
As all situations are unique, the above doesn’t apply to every taxpayer. You should consider the above if you decide to file a separate return. In most cases, Married Filing Separately is not the best option for those who are students. However, it’s worth estimating the tax benefits using both married statuses so you can determine the one that is the best for you.
Claiming Deductions with Low AGI
If you calculate your AGI as lower on a separate return than when you consider a joint return, some deductions may be larger in benefit, especially if they are limited by your AGI, such as medical expenses.
Exemptions for Spouse on Separate Return
You can’t claim an exemption for your spouse if they were listed as someone else’s dependent or they had any gross income of their own. If neither apply, you can claim the spousal exemption even on a separate return.
Change of Status Post-Filing
As long as your spouse agrees, you are able to change your separately filed returns to a joint return up to three years after the original deadline.
Community Property State Returns
You can file a separate return even if you live in a community property state. These states include:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
It may take some extra work though, as you’ll need to report your income and deductions on your tax return, as well as half of your combined community income and deductions calculated on a separate worksheet.
Same-Sex Couples
Same-sex couples who were married in a location where the union is legally recognized are granted the same tax rights as opposite-se couples. They will be required to use one of the Married statuses -either joint or separate.
