Married Filing Joint vs. Married Filing Separate: What Your Tax Preparer is Not Saying…

The amount of taxes you pay each year is greatly impacted by your filing status. Selecting the best filing status, while taking certain aspects of each into consideration is key to maximizing your tax situation. Most couples fail to meet with their tax advisor before they get married to gain an understanding of the impacts of marriage. Whether you are already married or planning to be married soon, this article will help you and your spouse prepare for the changes in your tax filings. If you are seeking a divorce, this article will also help you consider important changes you may need to make in your tax filings.

Your marital status is determined as of the last day of the tax year. For example, if you were married on December 31, 2021, you’d be considered married for the entire year of 2021. Same goes for couples who divorce on or before December 31, 2021; they’d be considered single or unmarried for the entire tax year for income tax purposes. If you are married, in general, there are only two filing status options for you – married filing joint (MFJ) or married filing separate (MFS). In some cases, that we’ll discuss below, you may be considered unmarried, even if you are not legally separated under a decree of divorce or separate maintenance.

Marriage “Bonus” or “Penalty”

Depending on the income of you and your spouse, you may benefit from filing MFJ or MFS. For instance, if one of you has high income while the other has little to no income, filing joint returns could be more advantageous – “marriage bonus.” On the other hand, if both you and your spouse have incomes that are more or less equal, a “marriage penalty” results. A “marriage penalty” results when you, as a married couple, pay more in taxes than you would have if you had filed as single persons.

Some relief can be found from the marriage penalty since various tax brackets below 35%, credits and the standard deduction, double the amount for joint filers to place an equal footing with single filers. However, for couples who itemize deductions or have incomes beyond 35%, the marriage penalty is still a very real issue.

Joint Liability

When you file as MFJ, you agree to both be jointly and severally liable for the taxes owed on the return for each tax year you file jointly (the decision to file jointly is an annual election). This liability extends to any penalties and interest assessed as well. Innocent spouse relief can be sought for a spouse seeking to escape this joint liability, but this is not easy, and you must be able to prove why you should not be liable for the debt and that you had no knowledge of the tax understatement attributable to erroneous items of the other spouse.

The issue of joint liability is very important to consider, especially when your marriage may be “on the rocks”. If you file as MFJ and there is a tax liability that cannot be paid at the time of filing, then it may be best to file separately, even if it means you’ll owe more in taxes than you would filing joint.

Credits available for MFJ only

Some of the tax benefits available to MFJ filers that are not available when filing separately are:

• Child and Dependent Care Credit
• Earned Income Credit
• Capital loss offset against ordinary income up to $3K
• Full $25K rental loss allowance
• IRA deduction for nonworking spouse
• American Opportunity and Lifetime learning credits
• Deduction for student loan interest

Some of these credits can be claimed if the married persons lived apart for all or part of the year.

Other Considerations

• Another “marriage penalty” includes a married person receiving social security benefits. If you are married and do not file jointly, up to 85% of your benefits are automatically includible in income.
• Once you file a joint return, it cannot be undone. However, if you file as MFS and want to change to MFJ later, this can be done on an amended return. Another reason to make your selection wisely.
• If you are married to a nonresident alien, the only way to file jointly is by having your nonresident spouse include all their income, including non-US income, on the return.
• If you file married filing separately, both spouses must either itemize or use the standard deduction. For instance, one spouse would not be able to use the standard deduction for MFS, while the other spouse on their return, chooses to itemize deductions. For optimal filing purposes, running the numbers for MFJ vs MFS is useful to determine all the effects of each filing and to determine any tax savings.

Head of Household Filing Status

Under the Head of Household filing status, the standard deduction is higher than the standard deduction for Married Filing Separate. Additionally, the tax rates are more favorable under this filing status. If you are considering filing as married filing separate and have a dependent, and if other situations apply, it would be advantageous to see if you qualify as “unmarried” for the tax year to qualify for this filing status.

You are considered unmarried if you are legally separated from your spouse or are married to a nonresident alien. Additionally, you are considered “unmarried” if you are NOT legally separated but the following applies:

• You live apart from your spouse
• You file a separate tax return
• You maintain as your home a household that for more than ½ the year, is the principal home of a dependent son or daughter (including a stepchild or foster child)
• You furnish over ½ the cost of maintaining the household for the entire year
• The other spouse did not live with you during the last 6 months of the tax year (temporary absences due to illness, education, vacation, business, etc. Does not count)

If you are married filing separately with a dependent, you would get better tax rates filing as Head of Household.

While married filing joint, in most cases, will present the most tax savings, there are times where you may still choose to file separately. For instance, if there are marital issues, or your spouse runs a business that will also be included in the joint return, and you don’t want to be liable for potential additional taxes that could be assessed if your spouse left out income or has poor recordkeeping that could be exposed if the return is audited. Filing jointly cannot be reversed once the return is filed, so it is important to consider all facts and circumstances with your Tax Advisor prior to filing.