Married Filing Jointly vs. Married Filing Separately

by | Oct 9, 2024 | Tax Tip | 0 comments

Many married couples frequently ask the question: Should we file our tax jointly or separately? The answer: It depends.

Taxpayers financial circumstances could be very different. There are many factors to consider to determine the filing status that could be more advantageous for a particular couple. It is very important that couples have an open discussion with their tax professionals to give them a clear understanding of their financial situation for the tax preparers to advise them correctly. Without an open discussion and understanding of the taxpayers unique situations, a tax professional could not correctly advise on what filing status is more advantageous. In some cases, it might be necessary to file both a joint return and a separate return to determine what filing status provides a lower tax due when a lower tax liability is the main objective. There are circumstances where avoiding joint and several tax liability is the main concern.

Both married filing jointly and married filing separately offer some advantages and disadvantages as noted in some of the differences below.

Married Filing Jointly

  • You could file a joint return when at least one of you is a U.S. citizen or a resident alien at the end of the tax year.
  • If either of you was a nonresident alien at any time during the tax year, you can file a joint return only if you agree to treat the nonresident spouse as a resident of the United States. In this case, your combined worldwide incomes are subject to U.S. income tax.
  • You could file a joint return if you are legally married on the last day of the year.
  • You are considered unmarried all year if you are divorced in the last day of the year.
  • You were married when your spouse passed away during the tax year and you did not remarry.
  • Married filing jointly offers a higher standard deduction.
  • There is a potential for lower combined tax bracket as well as a potential for higher combined tax bracket.
  • You could qualify for certain credits as well as unqualify for certain credits because of higher combined income.
  • Filing jointly creates joint and several liability. Both you and your spouse may be held liable, jointly and individually, for the tax and any interest or penalty due on your joint return. This means that one spouse may be held liable for all the tax due even if all the income was earned by the other spouse.
  • The IRS can offset joint refunds against the debt of only one spouse.
  • Joint filing also exposes certain assets to IRS Collections.
  • If a situation arises where it would be inequitable to hold one person in the marriage responsible for the other’s portion of the joint tax obligation, that person may file an innocent spouse claim for relief from the tax debt.
  • A spouse can get a refund of his or her share of the overpayment of tax if he or she qualifies as an injured spouse by filing for an injured spouse relief.

Married Filing Separately

  • Separate returns may give you a higher tax.
  • If you and your spouse file separately, you each are only liable for the tax due on your own tax return.
  • You must file a tax return if your gross income is $5 or more.
  • You should provide the other spouse’ name and social security number on your tax return.
  • Some married couples file separate returns because each wants to be responsible only for their own tax. There is no joint tax liability.
  • In almost all instances, if you file separate returns, you will pay more combined federal tax than you would with a joint return because the following special rules apply if you file a separate return:
  • Your tax rate is generally higher than it would be on a joint return.
  • Your exemption amount for figuring the alternative minimum tax is half of that allowed on a joint return.
  • You cannot take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer’s dependent care assistance program is limited to $2,500 (instead of $5,000 on a joint return). If you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit.
  • You cannot take the earned income tax credit unless you have a qualifying child.
  • You cannot take the exclusion or credit for adoption expenses in most cases.
  • If you lived with your spouse at any time during the tax year, you cannot claim the credit for the elderly or the disabled, and you will have to include in income a higher percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received.
  • The following credits and deductions are reduced at income levels that are half those for a joint return: a) The child tax credit; and b) The retirement savings contributions credit.
  • Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return).
  • If your spouse itemizes deductions, you cannot claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.
  • If you do not live in a community property state, you may be able to claim itemized deductions on a separate return for certain expenses that you paid separately or jointly with your spouse.
  • You cannot exclude the interest from qualified savings bonds that you used for higher education expenses.
  • You cannot take the credit for higher education expenses (American opportunity and lifetime learning credits) or the deduction for student loan interest.

Reference:

  • IRS Publication 504 (2023).

  Hiring a tax resolution expert is the best action a taxpayer could take during an audit by the IRS or a state Department of Revenue. 

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