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Filing jointly or separately as a married couple: What’s the difference?

When you file your tax return, a tax filing status must be chosen. This status is used to determine your standard deduction, tax rates, eligibility for certain tax breaks and your correct tax.

The five filing statuses are:

  • Single
  • Married filing jointly,
  • Married filing separately,
  • Head of household, and
  • Qualifying surviving spouse.

If you’re married, you may wonder if you should file joint or separate tax returns. It depends on your individual tax situation.

In general, you should choose the filing status that results in the lowest tax. But keep in mind that, if you and your spouse file a joint return, each of you is “jointly and severally” liable for the tax on your combined income. And you’re both equally liable for any additional tax the IRS assesses, plus interest and most penalties. That means the IRS can come after either of you to collect the full amount.

Although there are “innocent spouse” provisions in the law that may offer relief, they have limitations. Therefore, even if a joint return results in less tax, some people may still choose to file separately if they want to only be responsible for their own tax. This might occur when a couple is separated.

In most cases, filing jointly offers the most tax savings, especially when the spouses have different income levels. Combining two incomes can bring some money out of a higher tax bracket. Filing separately doesn’t mean you go back to using the “single” rates that applied before you were married. Instead, each spouse must use “married filing separately” rates. They’re less favorable than the single rates.

However, there are cases when married couples may save tax by filing separately — for example, when one spouse has significant medical expenses. Medical expenses are deductible only to the extent they exceed 7.5% of adjusted gross income (AGI). If a medical expense deduction is claimed on a spouse’s separate return, that spouse’s lower separate AGI, as compared to the higher joint AGI, can result in a larger total deduction.

Only on a joint return

Keep in mind that some tax breaks are only available on a joint return. The child and dependent care credit, adoption expense credit, American Opportunity tax credit and Lifetime Learning credit are only available to married couples on joint returns. And you can’t take the credit for the elderly or the disabled if you file separately unless you and your spouse lived apart for the entire year. You also may not be able to deduct IRA contributions if you or your spouse were covered by an employer retirement plan and you file separate returns. And you can’t exclude adoption assistance payments or interest income from Series EE or Series I savings bonds used for higher education expenses.

Social Security benefits

Social Security benefits may be taxed more when married couples file separately. Benefits are tax-free if your “provisional income” (AGI with certain modifications, plus half of your Social Security benefits) doesn’t exceed a “base amount.” The base amount is $32,000 on a joint return, but zero on separate returns (or $25,000 if the spouses didn’t live together for the whole year).

Circumstances matter

The filing status decision you make when filing your federal tax return may affect your state or local income tax bill, so the total tax impact should be compared. There may not be a simple answer as to whether a couple should file jointly or separately. Various factors must be examined. We can help you make the most advantageous choice. Contact your local Padgett advisor to prepare your return or if you have any questions!

MFJ vs MFS: filing options for married taxpayers

If you’re married, you may not be aware of your tax filing options and assume that filing a return jointly with your spouse is the only choice available to you. In fact, married taxpayers can file separate returns. It’s tricky, though. There are specific situations where filing separately makes sense, and other times where it doesn’t. It’s important to choose the right method, because once you file jointly, you can’t amend your return to filing separately.    

There are no rules of thumb on when it makes sense for married taxpayers to file separately. Although in most cases, filing jointly will produce the most beneficial results, tax law has grown so complex that a great number of factors need to be considered. So what’s the real difference between the two options?   

Married Filing Jointly (MFJ)

Married filing jointly means that you and your spouse will file just one tax return, with income and deductions for both of you. The IRS usually encourages couples to file jointly. You’ll usually get a lower tax rate this way, and the IRS offers some tax breaks for joint returns. Some common benefits available to joint filers include:  

  • Earned Income Credit (EIC)
  • Dependent care credit 
  • Tuition credits
  • Child-care credits (unless you lived apart from July to December)
  • American Opportunity Credit
  • Lifetime Learning Credit for education expenses
  • Student interest loan deductions
  • More limited IRS contribution deduction
  • Lower limit on capital losses  

If you live in a community property state, such as Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, a joint return is also much more convenient, as it avoids some tricky tax rules on separate returns.   

Married Filing Separately (MFS)  

There are some cases where filing separately may be a better choice for married taxpayers. Filing separately means that you will each file your own tax return and keep your income and deductions separate from your spouse’s.    

You may want to file separate returns if it means some deductions become available. For example, the spouse with the lower income may be eligible for a medical expense deduction if their income is kept separate, but not if it’s combined. Keep in mind, your filing status selection on your federal return could impact your state income tax return. Before finalizing your decision, be sure to consider the impact to both your federal and state returns.  

There are a few reasons to file separately even if doing so means you collectively pay more tax or get less of a refund. One is when you and your spouse keep separate finances as a rule. Another is to avoid being liable for each other’s amounts due. When filing jointly, the IRS can come after either of you to collect the full amount. And remember, if you’re filing separately and need to extend, you’ll need to each file your own extension as well.

How to choose?

The best way for married taxpayers to know for sure which method of filing is the best fit is to prepare the return both ways and compare the results. This means you’d have to prepare three returns—the joint return, and two separate returns. But who has time for that?  

Happily, most tax professionals can use their software, along with their knowledge of tax law and how it applies to unique separate filing situations, to determine whether it’s likely that filing separately would be better from a tax due or refund perspective. If your preparer isn’t offering this service, you might be missing out!     

If you want to be sure you’re not leaving tax money on the table, turn to a tax professional to help you file. Padgett’s network of CPAs and EAs can help you determine which method of filing is the best fit so you don’t have to worry. Find a location near you today!  

5 Tax tips for newly married people

With wedding season peaking between May and October, many newlyweds will soon be settling into their lives together. No matter when you choose to say “I do” if you get married anytime on or before the last day of the year, you’re considered married for the entire year in the eyes of the IRS. So, if you’re tying the knot anytime this year, here are 5 key tax tips you need to know.

1. Discuss filing status.

Once you are married you have two options when filing your tax return: married filing jointly or married filing separately. This is an important decision to make since you can’t amend to change your filing status once you file jointly. Most people choose to file jointly, but for some couples, filing separately can result in a bigger tax savings.

Because there are many factors to consider, it’s best to speak to a tax professional before deciding. They can often prepare sample returns and use their knowledge of tax law to help you determine which option will allow you to save the most on your taxes.

2. Update any name or address changes.

If you change your name after getting married, it’s important to make sure you update your information with the Social Security Administration (SSA). When you file a tax return, the name on your return must agree with the name the SSA has for your Social Security number or processing could be delayed or prevented. You can file Form SS-5 to apply for a new Social Security Card to reflect the change.

Did you move in with your partner or find a new home together since filing your last tax return? If so, make sure you update your address with the IRS to ensure you’re receiving refunds, notices, and any other important mail to your new residence. Accurate information can also help avoid processing issues with your return. You can update your address using Form 8822.

3. Check your withholding.

Combining income with your partner’s may move you into a new tax bracket. Consider changing your withholding and file a new Form W-4 with your employer. You can use the IRS’s Tax Withholding Estimator or work with a professional to help you determine the correct amount of withholding.

4. Update your bank account information.

If you change your name and choose to have your tax refund directed deposited into your bank account, it’s crucial to update the name on that account as well. If you file your return under your new name but don’t update your bank account, you will be unable to use that account to receive your refund. Make sure your bank account, SSN and tax return all have the same identifying information to avoid issues.

5. Consult a tax professional.

With so many new changes in your life, you don’t need to spend time worrying—or worse, arguing with your spouse—about your taxes. Working with a professional can help you make informed decisions and reduce financial stress.

Padgett’s nationwide network of CPAs and EAs are here to help! Find an office near you today to get started with tax planning for your married life.

We encourage you to contact us with any questions.

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