Filing taxes jointly after marriage is generally the default most married couples take. Usually, it’s more beneficial due to higher deductions and more credits. There is a certain simplicity and lower tax liability to this option. However, in some cases, married couples may want to consider filing separately for some key reasons.
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High-Deductible Expenses
High-Deductible Expenses can impact taxes. If one spouse has significant out-of-pocket medical expenses, filing separately can allow them to meet the 7.5% of their adjusted gross income (AGI) threshold more easily, as only their lower individual income is used for the calculation. The way it works is, you can only deduct medical expenses that you personally paid for, including expenses that you paid for your spouse. Your spouse will not be able to count those in their filing when you do that. This part gets tricky when it comes from a joint account.
Protecting Tax Benefits
Protecting Tax Benefits can be important when one spouse has significant self-employment losses or tax credits. Filing separately may prevent those from being offset by the other spouse’s income.
Divorce/Separation
Divorce/Separation is a common reason to file separately. This provides financial and legal separation during contentious periods. This may protect each party from the liability of the other spouse providing inaccurate financial information.
Student Loan Repayment Programs
Student Loan Repayment programs, like income-driven repayment (IDR) plans, prevent your spouse’s income from being included in the repayment calculation. This can lead to lower monthly payments and the benefits of loan forgiveness programs. Under certain programs, you only need to make a limited number of payments towards the loan, and the balance may be forgiven.
Liability Protection
Liability Protection is another reason filing separately when married might be considered. When wage garnishments under defaulted student loans, owed child support/alimony, and back taxes owed are triggered, the spouse’s refund might not be garnished to offset the debt.
Lowering your AGI
Lowering your AGI helps qualify for certain deductions or credits that have income limitations. This may be the case for one party, while it may increase the AGI for the spouse with the lower income in community property states.
Note: Community property states require that deductions be split to community income, typically when filing separately. You also must report half of all community income and all of your separate income on each federal tax return.
While these scenarios highlight potential benefits of filing separately, tax laws are nuanced. We are not tax advisors and do not prepare returns. To ensure you’re making the most tax-efficient choice for your specific household, we recommend consulting with a CPA.