When Does Married Filing Separately Make Sense?
After the wedding, I started taking a closer look at the tax numbers and incorrectly concluded that the only time someone would ever file as “married filing separately” would be if one partner earned a whole lot and one partner earned not as much. The logic was that the lower earner wouldn’t be subject to the same tax rates as the higher earner and thus the difference would overcome the different tax brackets. The only correct assumption I made was that the lower earner wouldn’t lose access to any tax advantaged accounts, like Roth IRAs, because they’d still be over the limits for those types of accounts. I already gave out my hypothesis and my result (I was wrong and am now clueless as to why anyone would file separately if both options were available) but here’s what I did.
Hypothesis: Married Filing Separately shares more of the lower tax brackets as Single filers but you lose practically all of the favorable tax benefits that Single filers enjoy. The benefit of filing separately is if you have a significant disparity in income with the sum total above many of the tax beneficial limits. (this hypothesis is proven wrong)
2008 Tax Brackets
| Tax Rate | Single | Married Filing Jointly | Married Filing Separately |
| 10% | Not over $8,025 | Not over $16,050 | Not over $8,025 |
| 15% | $8,025 - $32,550 | $16,050 - $65,100 | $8,025 - $32,550 |
| 25% | $32,550 - $78,850 | $65,100 - $131,450 | $32,550 - $65,725 |
| 28% | $78,850 - $164,550 | $131,450 - $200,300 | $65,725 - $100,150 |
| 33% | $164,550 - $357,700 | $200,300 - $357,700 | $100,150 - $178,850 |
| 35% | Over $357,700 | Over $357,700 | Over $178,850 |
(taken and amended from my 2008 tax bracket post)
Three Scenarios
What happens with a couple earning $100,000 with one earner taking in $80,000 and one earner taking in $20,000?
- Married Filing Jointly: $17,687.50
- Married Filing Separately: $16,772 + $2,197.5 = $18,969.50 (correction)
That’s a difference of $2,802.50 but both individuals lose access to a Roth IRA (among other significant benefits).
What about a couple earning $200,000 with one earner banking $120,000 and one banking $80,000 would pay (this doesn’t take into account deductions):
- Married Filing Jointly: $44,744
- Married Filing Separately: $28,964.50 + $16,772 = $45,736.50
What!? It’s more to file separately… maybe the disparity has to be greater. What if a couple earned $400,000 with one earner banking $320,000 and one banking $80,000?
- Married Filing Jointly: $58,787
- Married Filing Separately: $49,402.5 + $16,772 = $66,174.5
Two Potential Reasons to File Separately
So, I tried to do more research and discovered this great About.com article and according to William Perez, filing separately makes sense in two basic scenarios:
- “Filing separate returns makes the most sense when one spouse owes a significant amount of money, but the other spouse could get a refund.”
- “It also makes sense when one spouse is cheating on their taxes, and the other spouse doesn’t want to be involved.” (Nice!)
Let’s ignore scenario #2 because anyone who lets someone else knowingly cheat on taxes doesn’t really need to worry about their tax bill, they have bigger issues. With scenario 1, you have to be in such a small window, for both earners, such that the lower earner’s deductions will save them more than the higher earner loses by filing separately (as evidenced by our 80/20 example above). The 25% tax bracket starts at $32,550 for married filing separately but starts at $65,100 for married filing together! I suppose the numbers have to be in that range for this to make sense… but then you start giving up great benefits such as a Roth IRA, which is available if your total AGI is less than $156,000 when you file jointly but only $10,000 when you file separately! (plus, I don’t know if I’d classify someone earning $80,000 as someone who would owe a “significant amount of money,” hence my 120/80 and 320/80 examples)
Plus, if you read the article some more, there are so many headaches involved in filing separately (both have to take itemized or both take standard, state taxes are a pain in many states, etc.) that I can’t even imagine the strangely specific scenario in which filing separately truly makes both financial and psychological sense.
Why would you file separately if you could file jointly?
Hat tip to Ryan Waggoner for providing this Quicken post with some solid reasons for married filing jointly, the main financial reason happens to be in the blind spot of my analysis, itemized deductions.
16 responses to “When Does Married Filing Separately Make Sense?”
dogatemyfinances responds:
Posted: March 26th, 2008 at 7:55 am
I just wrote on this, and married filing separately helps me, if my fiance and I were to get married this year.
I make just under 200 (33% bracket), in the math I did, he made between 20 and 70.
savvy responds:
Posted: March 26th, 2008 at 8:21 am
There is generally no advantage to filing separately (of course there are exceptions though). However, I would urge people to do the numbers both ways each year to be sure. It doesn’t take much more time and there’s a potential (though unlikely) benefit.
Michelle Foster responds:
Posted: March 26th, 2008 at 9:22 am
Filing separately is NOT the only option if you are married to someone with significant debt that may cause his/her refund to be collected.
There is also a form you can fill out called an Injured Spouse allocation in which you can request your “share” of the refund.
http://www.irs.gov/pub/irs-pdf/f8379.pdf
Lau responds:
Posted: March 26th, 2008 at 12:04 pm
Nice posts!
I’m in the same situation… Probably why my various forms, W-2’s, and 1099 are still laying all over my desk.
It looks like there would be a few $100’s difference between filing jointly or separately (the lower amount being if filing separately). The huge drawback is that I would have to pay a penalty for my Roth IRA contributions - penalty that would roll over year to year until I withdrew the money.
Even though we’d be better off filing separately - and not by much - I’m more and more convinced that having to worry about the penalty is worth it.
Lau responds:
Posted: March 26th, 2008 at 12:12 pm
Meant to say: “having to worry about the penalty is NOT worth it”
Sorry for the reposting, but how can we edit comments??
Myra responds:
Posted: March 26th, 2008 at 12:35 pm
I’ve heard of at least two scenarios where married filing separately helps:
1) Leveraging medical expense deductions, if one spouse has a lot of medical expenses, to take advantage of the 7% (I think) floor.
2) If one spouse is getting Social Security while the other is employed - I don’t know what the specific numbers are, but I think it has to do with Social Security not being taxed if it’s less than a certain amount.
I would imagine that it’s highly fact-specific, though.
Also, note that if you live in a community property state (like California), you earn half of your income and half of your spouse’s income (and vice-versa), so the low income/high income spouse approach won’t benefit you.
Lynn responds:
Posted: March 26th, 2008 at 3:24 pm
In a recent divorce proceeding the couples had filed jointly for 22 years (or so the wife thought) Come to find out the returns were never mailed by the man of the house. The IRS was tipped off after the male left the country and the ex-wife is holding the bag. Yes, this went on for 20 years and never a notification from the IRS, until he left the country. Some one is asleep at that switch.
Lazy Man and Money responds:
Posted: March 26th, 2008 at 6:18 pm
I explored the option of filing separately this year, since we seem to be in the scenario where it would help… It got close to break even, but that was about it. If we were both single, we would have been much off.
Trisha responds:
Posted: March 27th, 2008 at 2:50 am
I’ll be getting married this year. And, for some reason, I was under the false impression that we should file separately! The Quicken link was very helpful. But, not only would filing jointly save money in taxes–wouldn’t it also save money on tax preparation?
Right now, our CPA charges us each $150 per year. It would make sense that since he’d only be putting together one return, the fees would be cheaper!
Steve responds:
Posted: March 28th, 2008 at 10:06 am
Check your state tax laws too. I was recently married and live in Ohio, and was absolutely shocked to find the married tax bracket is exactly the same as the single, so state taxes went up by about 30% by being married. Now that I know this, it makes a lot more sense for us to file separately, which I’m planning on doing next year (couldn’t this year due to prior Roth contributions). And giving up next year’s Roth contributions. Thanks Ohio!
Enigma responds:
Posted: March 30th, 2008 at 10:54 pm
Filing separately also works pretty well where one spouse is an American citizen and the other is not (and not earning US income).
Tony responds:
Posted: April 1st, 2008 at 4:11 pm
If either person is a student you give up all the deductions that go along with being a student, including student loan interest…
TEd responds:
Posted: April 1st, 2008 at 4:51 pm
What if 1 person’s salary is 115k and the spouse is completely dependant with 0 income for the year? What will be the tax deduction?
Heather responds:
Posted: April 15th, 2008 at 8:38 am
I am on the 2nd scenario. My husband is self employed and had not paid any taxes, made more on his 1099 than I did, but after expenses ended up making 55,000. I showed 92,000 on my W2. It saved us over 1,000 to file separately as I got money back and he had to pay.
TFB responds:
Posted: April 24th, 2008 at 11:08 am
Is the first example calculated correctly?
“What happens with a couple earning $100,000 with one earner taking in $80,000 and one earner taking in $20,000?
* Married Filing Jointly: $17,687.50
* Married Filing Separately: $12687.5 + $2,197.5 = $14,885″
The total tax for married filing jointly in this example should be lower than that for married filing separately.
jim says in reply:
Posted: April 24th, 2008 at 11:53 am
Wow you’re right, my math was off. I corrected it above, thanks TFB.