Married couples can file their federal income tax returns jointly or separately. Depending on what they decide, it can make a difference of thousands of dollars on your tax return. There are many reasons to save money, and you shouldn’t miss any opportunity.
The IRS (Internal Revenue Service) encourages most couples to file joint tax returns by offering several tax breaks to those who do. In most cases, the best option for married couples is to file jointly, but in some situations, it is advisable to file separate returns.
So, does married filing jointly save money? Read below to ensure you get the lowest possible tax liability.
When you can make a statement together
The IRS (Internal Revenue Service) considers taxpayers united in marriage if they are:
1. Legally married according to state law.
2. Living together in a state-recognized common-law marriage.
3. Separated but without a financial support judgment or a court order final divorce decree at the end of the tax year.
You must be married on the last day of the tax year for which you and your spouse are filing as a married couple.
For example, you will not be able to claim marriage on your 2021 tax return if you were married on January 1, 2022, although you will be married at the time you file your 2021 tax return.
Reasons to file jointly
Filing a tax return jointly with your spouse provides many advantages. Each year, the IRS gives joint filers the maximum standard deduction, allowing them to immediately deduct a significant portion of their income.
1. Tax credits
It is common for couples filing jointly to qualify for several tax credits, including:
- Earned Income Tax Credit
- American Opportunity and Lifetime Learning Education Tax Credits
- Exclusion or credit for adoption expenses
- Child and Dependent Care Tax Credit
Filing a separate return prohibits you from taking advantage of these tax credits.
2. A lower tax rate
In most cases, a married couple will come out ahead by filing jointly. Tax brackets for married couples filing jointly typically pay 10% on roughly twice the taxable income compared to those filing separately.
3. The income factor
When one spouse’s income is much higher than the other, the benefits of filing a joint return can be surprising.
Take, for example, a marriage where one spouse earns $57,000, and the other only earns $10,000 from their part-time job.
If the spouse with the higher income filed a separate return, they would pay 22% of their taxable income above $40,125 (2021). However, if the couple files jointly, the marginal tax rate will be 12%.
Reasons to File Separately
On the other hand, couples who file separately receive little tax consideration and can even pay a higher tax rate. If you and your spouse file separately, you will automatically be disqualified from the deductions mentioned above and other credits.
The standard deduction for taxpayers who file separately is considerably less than those who file jointly. However, it is not always convenient to file a joint return. Filing separately can sometimes save you money on your return, as in the following cases.
1. Medical expenses
If you both have a large number of extraordinary medical expenses to claim, it can be difficult to claim both if you and your spouse have high AGI. The IRS only allows you to deduct the amount of these costs that exceed 7.5% of your Adjusted Gross Income (AGI).
For example, if you have $9,000 in medical expenses and have an income of $50,000, this would meet the 7.5% limitation ($9,000 ÷ $50,000 = 18% of your income).
Whereas, if together you have an income of $125,000, this would prevent you from claiming medical expenses since they would be below 7.5% ($9,000 ÷ $125,000 = 7.2%) of your income.
2. Past due debts
Many married couples file separately because they have past-due debts that can be deducted from their tax refund. This includes past-due child support, past-due student loans, or an unpaid tax obligation that a spouse incurred before the marriage.
The Internal Revenue Service (IRS) can go against either spouse to recover the total balance due, regardless of whether or not that spouse caused it.
However, filing a separate return may not be necessary due to prior tax liens. The couple can file IRS Form 8379, Injured Spouse Allowance, each year with their married filing jointly tax return until the spouse with liens catches up on their debt.
This prevents the spouse who does not have the debt from being penalized for being on the return and losing their share of any tax refund. Also, by filing a joint return, the couple can still claim deductions and credits not available to separate filers.
3. Independent Tax Living Preference
When you don’t want to be responsible for your partner’s tax bill, choosing the “married filing separately” status offers financial protection: the IRS won’t apply your refund to your spouse’s outstanding balance.
Separate filings help prevent the IRS from withholding one spouse’s tax refund when the other spouse falls behind in child support, for example.
Tax returns for married filing jointly can be very complicated after a separation. For this reason, couples going through divorce should avoid filing as married filing jointly to avoid complications with the IRS after the divorce.
A spouse who questions their partner’s tax ethics may feel more comfortable if he or she leads an independent tax life.
How to decide between both options
Does married filing jointly save you money? The best way to know whether you should file jointly or separately with your spouse is to file both ways. Consider using reputable tax software. Doing so may take a couple of extra hours, but the potential savings are well worth it.
Check your calculations, then look at the net refund or balance due each method produces. Alternatively, you can also ask an accountant what the best option is based on your individual circumstances.
Important data to take into account
The fact that you have filed jointly with your spouse in previous years does not mean that you will have to file jointly in the future.
Married couples can go from “Filing Jointly” to “Filing Separately” and back again each year if they choose.
The filing status of both spouses must match. In other words, one spouse cannot file as “Filing Separately” and the other spouse as “Filing Jointly” in the same tax year.
Remember, once a tax return is filed, you cannot always change the filing status by amending the tax return.