Married couples have a choice to make at tax time: They can file their income-tax returns jointly or separately. Most married people automatically file joint returns, but there are some situations where filing separately can be better. “Married filing separately is an uncommon filing status, however it can be beneficial for certain legal and strategic reasons,” says James A.J. Revels, a CPA and partner at KPMG in Philadelphia. Here are some reasons to file jointly or separately:
Reasons to File Jointly
1. You may get a lower tax rate.
In most cases, a married couple will come out ahead by filing jointly. “You typically get lower tax rates when married filing jointly, and you have to file jointly to claim some tax benefits,” says Lisa Greene-Lewis, a CPA and tax expert for TurboTax. “You need to consider your tax rate, your income and what deductions and credits you’re eligible for when you’re thinking about filing jointly or separately.”
2. You earn more credits and deductions.
If you’re married, you’re only eligible for certain tax breaks if you file a joint return. Couples who file separately lose the opportunity to claim the Earned Income Credit, the American Opportunity Credit and the Lifetime Learning Credit for education expenses. Married people filing separately also cannot take the student loan interest deduction or the tuition and fees deduction.
In most cases you can’t claim the dependent-care credit if you file separately, but if you’re legally separated or living apart from your spouse, you may still be able to file separately and claim the credit, says Revels. Also, your child tax credit and capital loss deduction limit will be half the amount it would be on a joint return, he says.
3. You can deduct retirement account contributions.
Married couples filing jointly also have much higher income cutoffs to be eligible to make Roth IRA contributions. They can contribute to a Roth IRA as long as the modified adjusted gross income on their joint return is less than $208,000 in 2021, with the contribution amount starting to phase out if they earn more than $198,000. But if you’re married filing separately and lived with your spouse at any time during the year, you can only contribute to a Roth IRA if your income is less than $10,000.
Reasons To File Separately
1. You earn the same income as your spouse.
There are some situations where married couples filing separately can come out ahead. The way the tax brackets are calculated, some high-income couples may end up with lower tax rates if they file separately, says Greene-Lewis. “High income earners, if both spouses earn the same, they may come out better filing separately,” she says.
But couples with lower incomes may pay more tax if they file separately. “You will potentially have a slightly higher tax when filing separate than you would have on a jointly filed return in lower tax brackets,” says Revels.
You can run your numbers with TurboTax’s TaxCaster calculator to estimate how much you’d pay in taxes if you file jointly vs. separately. Most tax software will do the calculations both ways and let you know which filing status would work out better for you.
2. You have hefty medical bills.
Filing separately may help you qualify for some tax breaks. For example, if you itemize, you can deduct unreimbursed medical expenses that exceed 7.5% of your adjusted gross income. If one spouse has a lot of medical expenses and the lower income, filing separately may make it easier to cross the 7.5% income threshold to deduct the expenses. “These medical expenses will have to be greater than 7.5% of their adjusted gross income and higher than the standard deduction in order to benefit,” says Revels.
Now that the standard deduction is so high, however — $24,800 for married couples filing jointly and $12,400 for single taxpayers and married individuals filing separately in 2020 — few people itemize their deductions. If one spouse itemizes their deductions, the other spouse has to itemize, too. “If your spouse itemizes deductions, you can’t claim the standard deduction,” says Revels.
3. Your income determines your student loans.
Filing separately may also help reduce the income that is used to determine student loan payments, says Revels. “Some taxpayers’ student loan payments are based on their tax return income,” he says. “It may be beneficial to change to married filing separately if this would result in a lower payment plan.”
4. You don’t want to be responsible for each other’s tax liabilities.
One of the most common reasons why some couples file separately is to limit their liability for the other spouse’s tax errors.
“In situations where there is a lack of trust between spouses, typically due to business activities or tax positions being taken on a tax return, filing separately is a way to help protect the innocent spouse from any potential legal or tax issues,” says Revels.
“When you file married filing jointly, each person is responsible for the accuracy of the return and the paying of the tax that may be due or assessed in the future,” says Morris Armstrong, an enrolled agent in Cheshire, Connecticut, who is authorized to represent taxpayers in front of the IRS. “In addition, if there is a history of balance due, or you are filing many years at once in order to get into compliance, filing as married filing jointly puts all assets on the table. This means that the wife who has $600,000 in her 401(k) may have that seized by the IRS to satisfy back taxes, even if the bulk of the income, and mistakes, were caused by the other spouse.”
Couples typically file separately during the divorce process, says Revels. “Married filing separately is used during the divorce process to separate each person’s tax situation and finances,” he says. “This also removes the responsibility for each other’s tax liabilities.”