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Filing Your Own Return

Married Tax Filing Status

Should We File a Joint Return or Married Filing Separately?

In our last post, we reviewed the main advantages and disadvantages of joint tax returns for married couples. This post will focus on when a married couple should consider filing separately, and special considerations if they reside in a community property state.

When to consider filing separately

Following are the main reasons that married individuals file separately:

  • High income. Where both spouses have high earnings, their combined income may place them in a higher tax bracket.
  • Debts. If a spouse owes back taxes, must pay child support, or has overdue student loans, filing a joint tax return could result in the IRS offsetting the other spouse’s tax refund to pay the debt.
  • Marriage problems. If a couple is going through a divorce, contemplating one, and/or one spouse is concerned about the other not reporting all of their income, they might wish to avoid liability for their spouse’s tax reporting and file their own return.
  • Income-based student loan repayment. Where one or both of the spouses is on an income-based student loan repayment schedule, the couple should have their accountant do some calculations for them. If the tax savings for filing jointly does not exceed the higher loan payments that will result from reporting their combined income, they should consider filing separately (but understand that lower payments will extend the period of the loan).
  • Itemized deductions. Sometimes filing separately is beneficial if one or both of the spouses has a lot of itemized deductions subject to an adjusted gross income (AGI) “floor,” such as medical expenses (where the deduction is limited to 7.5% of a taxpayer’s AGI) and employee business expenses (where the deduction is limited to 2% of the AGI).

Filing separately in a community property state

For married couples and registered domestic partners who file separately and reside in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin), each partner must report their separate income and half of the community income on their respective tax returns.

When filing separately, married couples should be certain to have an agreement regarding how they will calculate the reporting of their income and related expenses, and whether they will be itemizing expenses or utilizing the standard deduction. A Form 8958 must be attached to each Form 1040, which provides the IRS with an itemized list of how the allocation of each spouse’s wages, interest, dividends, capital gains and losses, deductions, and credits was made.

One or the other spouse may claim the exemption for each dependent child or children, but they may not each claim half of an exemption for a single person. For more on this topic, see IRS Publication 555.

Changing your filing status

When you file a joint return, you cannot switch to a separate return after the filing due date. If you file separate returns, however – as a single, head of household, or as married filing separately, you can usually change to a joint return at any time within three years of the filing due date (not including extensions).

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The Joint Tax Return

Married Tax Filing Status

Should We File a Joint Return or Married Filing Separately?

IRS data indicates that over 95% of married couples file jointly – and for most, but not all, couples this makes good economic sense. In this two-part series, we will discuss the advantages and disadvantages of filing joint and separate tax returns and how filing separately works for people who live in community property states.

Note that for federal tax purposes, the same rules apply for same-sex marriages, but not to individuals in a civil union, registered domestic partnership, or another relationship that isn't “marriage” under state law. The basics When a couple files a joint tax return, they combine their income, deductions and exemptions on a single Form 1040, and they either receive a refund in both their names or incur a tax debt for which both are liable. If they file separately, they each have their own tax return which includes only their own income – any joint interest, dividends and capital gains are divided between them and allocated to their respective returns. Any tax debt and liability is attributed to the individual, not to both of them.

Advantages of filing a joint return

The reason why so many married couples file a joint return is that for most everyone who is not in a very high income bracket the tax rate is lower when filing jointly, particularly if there is a significant discrepancy between the spouses’ respective earnings. The standard deduction is also slightly higher.

In addition, married taxpayers who file jointly can take advantage of a number of itemized deductions and tax credits that are only allowed (or more fully allowed) for joint filers, such as:

  • The Earned Income Tax Credit (EITC)
  • Education tax credits (American Opportunity Credit and Lifetime Learning Credit)
  • Deduction for net capital losses
  • Child and dependent care credit
  • Adoption Tax Credit
  • Deduction for college tuition expenses
  • Deduction for student loan interest payments

A few disadvantages to consider

Taxpayers in high income brackets and those with a lot of itemized deductions (including medical expenses) should do a comparison with the numbers for married filing separately, to see which result provides a better outcome. Taxpayers with student loans have something else to consider – since student loan payments are calculated on the basis of the previous year’s tax returns, if a joint return is filed the following year’s monthly loan payment will be based on the income of two people rather than one and is likely to be significantly higher.

The main concern for some taxpayers is that married couples who file a joint return have “joint and severable liability” for any tax due. What this means is that both spouses are equally responsible for the taxes owed, and may be audited and/or prosecuted for tax fraud committed by either party. The IRS does not care which spouse incurred the debt, it will pursue both – one of the spouses could be responsible for the entire tax debt even if the other spouse earned all of the income! Although “innocent spouse” and other forms of relief are available, the taxpayer has the burden of proving that they are qualified for it.

Changing your filing status

Finally, keep in mind that after the due date for the filing of your tax return, you cannot switch from married filing jointly to married filing separate.

In our next post, we will discuss married filing separately in more detail, and special considerations in Community Property states.