priligy lima peru

What is “Married Filing Separately” and Will It Save Me Money?

You’ve probably heard that married couples can file separate returns and wondered at some point if you should.

Conventional wisdom says that you should always file a joint return with your spouse because you will pay less tax.  However, there are certain times where filing separately might save you money or provide you with other benefits such as separate tax liability.

That said, filing separately has a few major drawbacks that you need to know about and it is certainly not for everyone.  In this article, we’ll discuss the two available married filing statuses and the pros and cons to filing separately.

The Basics

If you’re legally married as of the last day of the year, your only choices for filing are to file jointly or separately.  You’ve probably heard of the “married filing separately” status but never known anyone who has filed that way.  That’s because married filing separate is probably the least used and least understood filing status available to taxpayers and its only a good choice in certain situations.

Please note that if you live in a community property state, the rules are a little different, so please consult your tax adviser if that applies to you.  Illinois and Missouri are NOT community property states.

Married Filing Jointly

This is the status that you’re likely most familiar with.  Both spouses’ income and deductions are combined and filed on the same tax return.  Each spouse signs the return and that’s it.  It’s cheaper than preparing and filing two tax returns, and you have all of the tax deductions and credits available to you.  Sounds like a “no-brainer”, right?  As with everything to do with taxes, it’s not always that simple – as you’ll see next.

The “Marriage Penalty”

But wait“, you say, “what’s this ‘marriage penalty’ I’ve heard about”?  “How does this affect my taxes”?  The “marriage penalty” refers to when two married people filing jointly would actually have to pay more tax filing together than if they were each filing as single, due to the way our tax brackets work.  It usually happens when both people make approximately the same taxable income, because when their incomes are combined the couple may be in a higher tax bracket (and thus pay higher rates on the top portion of their income) and may have some of their deductions or credits limited due to their higher Adjusted Gross Income (“AGI”).

Unfortunately, there isn’t much that we can do about the “penalty”, since married people are not allowed to use the single filing status.  However, Congress has passed several pieces of legislation over recent years attempting to lessen (or eliminate) the “marriage penalty” in lower brackets.  Our tax system is constantly changing and evolving (or devolving, depending on your point of view!).

Married Filing Separately 

As the name implies, under married filing separately status (“MFS”), each spouse files a completely separate return.  This involves more cost and more work, as now you have to prepare and file two returns, as well as decide whether to itemize or claim the standard deduction, who claims each child, how to split the deductions, and on and on!  You’re probably asking yourself: “why would I EVER want to do that?!“.  It’s hard enough to get a happily married couple to agree on anything, much less couples who are separated and/or getting divorced!

The Benefits to Filing Separately

There are reasons that the MFS filing status exists.  The status was originally created to help divorcing or separated couples who are not willing to file their taxes jointly, but one other very important benefit is that it allows for separate tax liabilities, which can provide protection in certain situations.

In general, some situations where filing separately might be a good idea are when:

  • One spouse wants to file a tax return, but the other doesn’t
  • One spouse is “cheating” on their tax return, and the other spouse doesn’t want to be involved
  • One spouse is self-employed, and the other doesn’t want to be responsible for any tax problems
  • One spouse owes taxes, and the other would get a refund
  • You are separated, but not yet divorced
  • The spouse that owes a large amount cannot pay their tax debt and the other does not want to be liable for that debt
  • You would pay less combined tax filing separately than jointly

Okay, That’s Great – But How Would Filing Separately Save ME Money?

MY spouse isn’t a tax evader!  We’re not doing anything that would make me want to file a separate return.  We’re happily married.  What’s this you said about paying less tax?  Tell me more about that”.

Yes, there are occasions when filing separate returns will save a married couple on their taxes.  This primarily happens in cases with childless couples where one spouse earns a lot more money than the other and the lower income spouse has a lot of potential itemized deductions that are limited by AGI (e.g. medical deductions, casualty losses, or miscellaneous itemized deductions like unreimbursed employee expenses).  Filing separately allows the lower income spouse to get the benefit of these deductions that, if they filed jointly, the couple would lose due to their (much) higher combined AGI.

While that seems pretty simple, this really isn’t an easy decision to make because of the drawbacks to filing separately, which we’ll discuss next.

The Drawbacks to Filing Separately

There is a good reason why you probably don’t know any other couples who file separately.  That reason is that filing separately eliminates a couple’s eligibility to claim several large and beneficial tax provisions, such as:

  • Earned income credit
  • Child tax credit
  • Child and dependent care credit
  • Student loan interest deduction
  • Tuition and fees deduction
  • Elderly and disabled credit
  • American Opportunity (Hope) and Lifetime Learning education credits

Now you can see why it’s usually only childless couples who find benefit in filing separately.  Anyone with kids or with kids in college will lose their child tax credits, child care credit, and education credits.

Other drawbacks are:

  • A phase-out on the deductibility of Traditional IRA deposits
  • Capital loss deduction limited to $1,500 each
  • Both taxpayers must use the SAME method of recording deductions (i.e. both use itemized, or both the standard – even if the other spouse has NO itemized deductions)

Conclusion

As you can see, there can be some benefits to a married couple filing separately.  However, filing separately is not without drawbacks, and it’s certainly not a good idea for everyone.

The good news is that if you think you might benefit from filing separately but aren’t sure, I can help you calculate the difference under each of the two filing methods.  Together, we can then decide what works best for you!

DID YOU LIKE THIS ARTICLE?

  1. Leave a comment below and let me know what you think!
  2. Please share it with your friends!

    [wpsr_socialbts effect=”jump” type=”16px” label=”1″ columns=”5″ services=”facebook,twitter,googleplus,linkedin,pinterest,digg,stumbleupon,tumblr,reddit,email”]

  3.  Get future blog posts delivered right to your e-mail, so you never miss a post! (Don’t worry – it’s free!)

4 Responses to What is “Married Filing Separately” and Will It Save Me Money?

  1. mariscala says:

    The article stated that by filing separately that it eliminates the couple’s eligibility to claim the child tax credit and the child and dependent care credit. My husband has a child from a previous relationship and we are seriously considering filing separately because of child support issues. This is also his court-mandated year to claim his son on his taxes. Would he still be able to claim those credits considering he is not ‘our’ child?

  2. If you and your husband file married filing separately but lived together, he will not get to claim the dependent care credit at all. The child tax credit will phase out as your husband’s adjusted gross income exceeds $55,000 (completely phased out at $74,001 for one child).

    Also, keep in mind that if one of you itemizes, the other must itemize as well, even if you have no deductions.

    If you are concerned about your portion of the refund being seized for his child support or other amounts owed, consider filing an “injured spouse” form (IRS Form 8379) with your join tax return. That will preserve your portion of the refund while allowing you to file jointly. However your tax return will take the IRS 10 additional weeks to process.

  3. Christine Dugger says:

    Hello, I’m researching whether MFS makes sense for my husband and I as my law school loans go into repayment status. My husband is self-employed, and I will likely work for a moderate salary at a public agency. If we file jointly, our combined AGI is considered in determining my monthly loan payment, whereas if we file separately, only my income will be considered. After 10 years of public agency work, the balance is forgiven, which is a substantial amount. Wondering if the savings on student loan payments (both monthly and overall) if we file separately outweighs the drawbacks of doing so. Are my husband’s self-employment itemized expenses considered “itemizing” for purposes of deciding whether we itemize or take the standard deduction, or are his business expenses totally separate? Thanks!

  4. His self-employed business expenses are not considered itemized deductions. The business expenses will be taken against his business income on Schedule C to determine the net income from his business, which is then what he is taxed on.

    Based solely on the information you provided, yours may be one of the occasions where it makes sense to file separately.

Leave a Reply