Married Filing Separately

A tax status that applies to married couples who want to report their respective earnings, exemptions, and exclusions on separate tax returns

Almost all married couples pay their taxes jointly. One tax return is typically easier to prepare than two, and it nearly always results in a smaller tax burden than filing separately. 

Married Filing Separately

However, utilizing the married filing separately tax status to divide up those returns may make financial sense in some cases. Here's how it works and when it can be useful to you.

It is a tax status that applies to married couples who want to report their respective earnings, exemptions, and exclusions on separate tax returns

The tax status is utilized by married couples who opt to file separate tax returns for their income, exemptions, and deductions.

Married filing jointly is an alternative to it. In addition, married couples usually benefit financially by filing jointly.

However, if one spouse has considerable medical expenditures or other itemized deductions, or if both couples earn roughly the same amount, it may be better to file separately.

A couple filing separately, for example, would each submit their own Form 1120 and any associated schedules, such as Schedule 1, Schedule A, or Schedule D. 

You and your partner are exclusively liable for your tax burden when you file separately. You are not liable for any tax, fines, or interest incurred as a consequence of each other's returns.

"The Internal Revenue Service (IRS) appears to believe that if someone files separately, they're doing something dirty," explained certified financial planner John Loyd, owner of The Wealth Planner in Fort Worth, Texas, noting how it may draw a little extra attention. 

Still, for certain couples, the tax advantages may exceed the disadvantages.

Understanding the process

When completing their annual tax returns, taxpayers have five tax filing status options: 

  • Single

  • Married filing jointly

  • Married filing separately

  • Head of household

  • Qualified widow(er).

Tax Calculation

Anyone registering as married in either category-filing jointly or separately-must be married at the end of the tax year. In other words, someone who filed taxes as married in 2020 must have been married no later than December 31, 2020.

Using the 'married filing separately' category may be desirable to certain couples and may provide financial benefits. However, combining their salaries and filing jointly may place them at a higher tax rate, increasing their tax burden.

When filing jointly, spouses must include their partner's information on their forms. If you and your spouse file separate forms and one of you itemizes deductions, the other partner will get a standard zero deduction, according to the IRS. 

As a result, the other partner should itemize deductions as well.

The couple will also need to select who receives specific deductions, which might be tricky if you wish to reduce your mortgage interest, for example.

Wedding

The standard deduction for married couples filing separately in 2021 is $12,550. It will climb to $12,950 in the tax year 2022. Filing separately may also preclude you from receiving some tax breaks and credits.

Although there are financial benefits to filing separately, couples may miss out on tax deductions reserved for married couples filing jointly.

Remember that filing as a married person, filing separately, and filing as a single unmarried person are not the same. In other words, you can't pick the single filing status if you're married. 

In some cases, the tax brackets for single taxpayers and married couples filing separately differ.

Standard Deduction for Married Filing Separately

The standard deduction increased significantly in the 2018 tax year due to the Tax Cuts and Jobs Act (TCJA).

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A standard deduction is the share of income that is not taxed, reducing taxable income. The IRS permits taxpayers to claim a standard deduction. However, the deduction amount is determined by the filing status, age, and whether the person is disabled or listed as a dependent on another person's tax return.

The standard deduction for individual taxpayers and married couples filing separately in 2021 is $12,550. The deduction is $18,800 for heads of households and $25,100.5 for married couples filing jointly.

The standard deduction for individual taxpayers and married couples filing separately in 2022 is $12,950. The deduction is $19,400 for heads of households and $25,900 for married couples filing jointly.

As a result, for the pair to benefit from filing separately, one spouse must have considerable miscellaneous deductions or medical expenditures. 

If a person and their spouse both earned taxable income, they could assess their tax bill as a combined and separate filer before filing to see which will save them the most money.

To determine whether filing individually or jointly is preferable for a person, file their tax return both ways and compare which route resulted in the lowest tax burden. 

If someone utilizes tax software to create their tax return, many tools available today will conduct this computation and make a recommendation.

Married Filing Separately (MFS) vs. Married Filing Jointly (MFJ)

For most married taxpayers, MFJ makes sense; however, customers with odd situations may wish to contrast and compare MFJ vs. MFS to discover which will work best for their specific financial position.

Meeting

  • There is only one Form 1040 that must be submitted to record combined income, expenses, deductions, and other information.

  • When a couple files jointly, they can take advantage of certain perks, deductions, and tax credits that would not be accessible if they filed separately.

  • Filing separately will almost certainly raise your tax exposure and the amount of tax an individual pays compared to filing jointly.

  • Filing separately may make sense if each spouse's deductions are considerably different.

Married filing jointly provides the greatest tax savings, especially when the income levels of the spouses differ. If you choose the MFS status, you will be unable to benefit from a variety of potentially beneficial tax benefits, including the following:

   1. Care Credit for Children and Dependents

The Child and Dependent Care Credit is a non-refundable tax credit that taxpayers can utilize to deduct unreimbursed childcare costs. 

Fees spent for babysitters, daycare, summer camps (provided they are not overnight), and other care workers for children under the age of 13 or dependents of any age who are not physically or mentally capable of caring for themselves are considered childcare.

   2. Tax Credit for Americans with Disabilities (AOTC)

The American Opportunity Tax Credit (AOTC) assists in defraying the expenditures of postsecondary education. 

It was implemented in 2009, and couples filing jointly must have a modified adjusted gross income (MAGI) of no more than $160,000 to be eligible for full credit. Meanwhile, couples earning $160,000 to $180,000 can qualify for a partial AOTC.

For the first four years a child attends an eligible postsecondary institution, the maximum incentive is a $2,500 yearly credit on qualifying educational costs.

   3. Credit for Lifetime Learning (LLC)

The Lifetime Learning Credit (LLC) allows parents to claim tuition and get a 20% tax credit on the first $10,000 of eligible school costs, resulting in up to $2,000 in savings on each tax return. Undergraduate, graduate, and professional degree courses are all eligible. 

There is a minimum income requirement to qualify for the LLC. The MAGI maximum is $69,000 for 2021 and $80,000 for 2022, or $138,000 and $160,000 for married couples filing jointly, respectively.

   4. Contribution to Individual Retirement Account (IRA)

A couple that filed separate tax returns can also deduct their contributions to a standard individual retirement account (IRA). Still, the income restrictions for deducting them if they or their spouse has a retirement plan at work are significantly lower than for those who file jointly.

 In both years, the maximum donation allowed is $6,000 ($7,000 for individuals over 50). Any expenditures incurred as a result of the adoption of an eligible child may be deducted if couples file jointly, but not if they file separately (check with a tax expert). 

The maximum credit granted for adoptions is the total amount of qualifying adoption costs up to $14,440 for 2021 and $14,890 for 2022.

How MFS vs. MFJ Affects Tax Rates

Your income tax bracket will be affected by how you file. The tax rates for married couples filing jointly or individually are as follows.

2021 Federal Tax Income Rates
2021 Federal Tax Income Rates
Tax RateMFJMFS
10%$0 to $19,900$0 to $9,950
12%$19,901 to $81,050$9,951 to $40,525
22%$81,051 to $172,750$40,526 to $86,375
24%$172,751 to $329,850$86,376 to $164,925
32%$329,851 to $418,850$164,926 to $209,425
35%$418,851 to $628,300$209,426 to $314,150
37%$628,301 or more$314,151 or more
2022 Federal Tax Income Rates
2022 Federal Tax Income Rates
Tax RateMFJMFS
10%$0 to $20,550$0 to $10,275
12%$20,551 to $83,550$10,276 to $41,775
22%$83,551 to $178,150$41,776 to $89,075
24%$178,151 to $340,100$89,076 to $170,050
32%$340,101 to $431,900$170,051 to $215,950
35%$431,901 to $647,850$215,951 to $323,925
37%$647,851 or more$323,926 or more

Benefits

While the tax legislation encourages married couples to file together, a few situations may be advantageous when married filing separately.

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These include situations where both spouses earn roughly the same amount of money and when merging income puts a pair in a higher tax band. The following are some more instances where MFS may make sense.

  • The partners have deductions depending on their Adjusted Gross Income (AGI) - 
    The most typical example of a deduction affected by AGI is high medical expenditures. Medical costs that exceed 10% of your AGI are deductible.

  • The partners have student debts that depend on your salary -
    Student loan payments are calculated based on each spouse's income rather than combined income as in separately filed returns. This may lessen their responsibility to make greater student loan installments in some situations. 

  • The partners reside in a state that recognizes community property -
    If an individual or their spouse lives in a community property state, there are specific laws for sharing income and assets. Even if the couple filed two returns, they might be required to disclose half of their combined income and deductions on each return.

  • To safeguard oneself from liability risks -
    If there is a lack of trust between couples, filing separately may be a suitable alternative. Because both couples must agree to file a joint tax return, filing separately may be advantageous if one spouse accuses the other of tax evasion or misfiling tax paperwork.

  • Partners are unwilling to file jointly -
    Married couples filing separately can also enable couples going through a divorce or separation. Even if divorce or separation isn't an issue, filing separately can give each couple control over their tax position and even their own finances.
    When couples without dependents have high itemized deductions or are splitting, selecting the MFS status makes the most sense.

  • No worries regarding trust issues -
    When both spouses sign a joint return, they are jointly liable for the return's accuracy and any tax liabilities or penalties that may apply. And is exclusively responsible for the correctness of his/her own information and any tax liabilities and penalties that may result if they sign an individual return rather than a joint one.

Disadvantages

In reality, most married couples benefit from filing jointly. In reality, over 95% of couples choose to file jointly since it results in cheaper tax payments and more accessible filing.

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The IRS prefers that married taxpayers file jointly. As a result, filing separately has certain disadvantages, including:

  • Fewer IRS tax considerations and deductions

  • Loss of eligibility for some tax credits

  • Higher tax rates result in more tax owed.

  • Contribution restrictions for retirement plans are being reduced.

One of the most significant disadvantages is the loss of various tax benefits, credits, and deductions. These are some examples:

  • The Child and Dependent Care Expenses Credit - entitles the couple to a non-refundable tax credit for unreimbursed child care expenses such as babysitting, daycare, and summer camp.

  • Education tax credits - such as the American Opportunity Tax Credit and the Lifetime Learning Credit, assist in offsetting the costs of postsecondary education.

  • Student loan interest - If the individual is married and files jointly, the interest on their student loans may be tax deductible.

Other tax advantages that married couples filing separately are not eligible for include:

  • The Earned Income Tax Credit (EITC) is a labor credit that can either pay an individual's money back or lessen the amount of federal taxes the individual owes. 

  • Adoption Tax Credit are tax breaks given to adoptive parents in the United States to encourage adoption.
    Individual taxpayers can claim a credit for "qualified adoption expenditures" paid or incurred under Section 36C of the United States Internal Revenue Code.

  • Credit for the Elderly or Disabled - The elderly or handicapped tax credit generally runs between $3,750 and $7,500; it is 15% of the starting sum, minus the total of nontaxable social security payments and certain other nontaxable pensions, annuities, or disability benefits received.

Furthermore, the Child Tax Credit and the Saver's Credit will be reduced to half what they would be if a couple filed jointly.

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Researched and Authored by Shannon | LinkedIn

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