The Pros and Cons of Married Couples Filing Separate Tax Returns

Married couples typically enjoy far more tax benefits when submitting a joint return vs. filing separately.

Couples filing separately, for example, don't qualify for tax breaks, such as the Earned Income Tax Credit, education tax credits or a deduction for student loan interest. And they may not qualify for a Roth IRA or a deductible traditional IRA because of strict income limits on contributions by spouses who file separately.

Even so, couples may find it advantageous for each spouse to file their own return in some situations. Here are four cases in which it might be worth filing separately.

  1. One of you has high medical expenses. You can deduct medical expenses that exceed 7.5% of adjusted gross income. That can be a high threshold to meet on a joint return that combines both spouses' incomes. If one spouse has significant medical expenses, though, it may be worthwhile to file separately so that spouse can deduct them.

  2. You struggle with federal student loan payments. Uncle Sam offers a variety of income-based repayment plans that allow lower monthly payments than the standard federal loan repayment plan. It's possible your income reported on a separate tax return might be low enough to qualify for one of these lenient repayment plans. (In some cases, the monthly payment could be $0.) You'll need to weigh whether the reduction in monthly payments is worth the potentially higher taxes you and your spouse might pay by filing separately.

  3. Your state has a marriage penalty. A marriage penalty is triggered when a couple filing a joint return pays more income tax than they would as singles with the same combined income. This usually happens when a tax bracket's income range for joint filers is less than double the amount for single filers, thus pushing joint filers more quickly into a higher bracket.

    The 2017 tax law largely got rid of this penalty on the federal level, although some states still have marriage penalties built into their tax brackets, according to the Tax Foundation.

    In addition, seven states — Arkansas, Delaware, Iowa, Mississippi, Missouri, Montana and West Virginia — and the District of Columbia counter potential marriage penalties by permitting couples to file separately on the same return, allowing them to avoid losing credits and deductions, says the Tax Foundation. They can still file jointly on their federal return. If you reside in Washington, DC, or one of these seven states, see if filing separately on a single state income tax return works to your favor.

  4. You avoid a partner's tax problems. When spouses file jointly, they are generally both responsible for the return and any tax liability. This is true if one spouse makes the bulk of the income or fudges tax deductions and credits. If you suspect your spouse is less than truthful on tax returns or you're going through a divorce, filing separately can prevent you from being liable for your partner's tax debt or penalties. (You can request "innocent spouse relief" from taxes and penalties incurred because your spouse improperly reported income or deductions. But it's a more difficult process than filing separately, and there's no guarantee the IRS will grant it.)

Please note: The contents of this publication provided by MissionSquare Retirement is general information regarding your retirement benefits. It is not intended to provide you with or substitute for specific legal, tax, or investment advice. You may want to consult with your legal, tax, or investment advisor to review your own personal situation. Some of the products, services, or funds detailed in this publication may not be available in your plan. This document may contain information obtained from outside sources and it may reference external websites. While we believe this information to be reliable, we cannot guarantee its complete accuracy. In addition, rules and laws can change frequently.

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