Many of us have heard that getting married comes with all sorts of tax benefits, so why would it ever make sense to turn away from the benefits of filing Married Filing Jointly? The Married Filing Separately tax status is, in most cases, less favorable than filing single, married filing jointly, or head of household. It involves recording all income, deductions, and exemptions on entirely separate tax returns. There are some unique cases where filing separately makes sense for one or both spouses, which will be discussed below.
Itemized Deductions
In some cases, where one spouse has significant itemized deductions and medical expenses above 7.5% of their adjusted gross income, couples can save tax money by using the separate filing. One spouse itemizing will result in the other’s inability to take the standard deduction, which is $13,850 for married couples filing separately for 2023. Basically, the total itemized deductions between the two spouses would have to be higher than $27,700 for it to make sense not to file jointly using the standard deduction.
Here is an example when Married Filing Separately would result in tax savings:
- Spouse 1 makes $100,000 and has $40,000 in unreimbursed medical expenses.
- Spouse 2 is married to Spouse 1 and makes $250,000.
If this couple filed jointly, their income would be $350,000 and the unreimbursed medical expenses above 7.5% of their income ($40,000 – 7.5%($350,000) = $13,750) would be less than their standard deduction ($27,700 for MFJ). However, if we consider them separately, Spouse 1 would have itemized deductions of $32,500 ($40,000 – 7.5%($100,000)). It’s important to work closely with your tax professional to find the tax filing status that makes the most sense for you, given your level of incomes, deductions, and exemptions.
Student Loans
For public servants eligible for loan forgiveness after a specified number of qualified repayments, getting married might result in some difficulty. Qualified repayment methods, including Pay As You Earn, Income-Based Repayment, and Income-Contingent Repayment all would consider just your income if you file MFS, but both your income and your spouse’s income if you file MFJ. If your spouse is a high earner, this could result in much higher payments before having your remaining balance forgiven. It’s important to work with both your loan servicer and your tax professional to figure out the best way to both minimize your taxes and maximize your amount forgiven.
Lack of Trust
State laws vary slightly but when you file your federal tax returns jointly, you and your spouse have joint and several liability, meaning that if your spouse can’t pay their portion of taxes, you are on the hook for the entire bill. This also applies to penalties associated with fraud, late filing, or understatement of taxes due.
If you suspect your spouse of tax evasion or tax fraud, the married filing separately status may offer some protections on a federal level. If you are in this position, it’s important to work closely with your tax advisor and potentially even involve an attorney to understand the laws surrounding this.
Conclusion
The MFS tax status has some special cases where filing this way may make sense. It is an uncommon filing status, so it’s important to understand the nuances and specific disadvantages of the status. Working with a qualified tax professional is essential to optimize your taxes and put you in the best financial position.