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When Does Married Filing Separately Make Sense?
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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
The analysis was using 2008 brackets but you can see the current tax brackets here.
| 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 |
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.
(Photo: Sean Molin Photography)
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Can my husband and I file jointly on our federal return and single on state returns. We started the year out in two different states. We had both lost our jobs and my husband moved to Virginia for a job. I stayed with the kids to sell the house and I collected unemployment from Michigan. I had Michigan take out both federal and state taxes from the unemployment. I moved with the kids to Virginia and notified Michigan. I still collect my benefits (which are technically from the federal gov’t) from Michigan and I believe they are still taking out state taxes (the unemployment amount hasn’t changed.) We filed an extention. I don’t understand my legal obligations. I just know I lived in both states, collected money from one and I don’t want to be double taxed by both states. If I didn’t earn money in Virginia, I would think I don’t owe them state money. Help, I’m confused.
Scenario:
Newly married a few weeks ago and now trying to figure out how to adjust our W-4′s so we do not owe money on our 2011 taxes and ensure a refund, and also how we should file at the end of the year (MFS or MFJ)?
My AGI for 2011 will be $36K, husbands will be about $62K, so combined we will gross roughly $98K-$100K.
I have been told by some to file MFJ, but it seems if we do that we might owe if we don’t withhold extra on our W4, while others have told me we should file MFS. Please help!!
i am married but in the process of a divorce. I bought my wife out of the house and we now share nothing finanically together. I was going to file for divorce in June but she wants me to wait till Jan. Am i hurting myself by doing this or is there a benifit to staying married and filing seperate vs getting a divorce and filing seperate.
Could there perhaps be a fairly large hole in this analysis, one concerning non-American, non-resident spouses (esp. of an American living overseas)?
To file MFJ, the spouse must place themselves on the IRS radar (forevermore) by obtaining a TIN, even if they never intend to move to the U.S. They could place themselves into the unfortunate position of becoming liable for U.S. taxes every year on their foreign income for the rest of their lives (when the alternative is “not”). Apart from the moral issue of expecting a citizen of another country to do this (e.g. they may simply refuse), this is quite a heavy burden to place on someone who is only interested in “an American” (as a spouse), and not in “America” the country.
You left out a third scenario. When one spouse is a student and the other spouse does not wish to shoulder the burden of paying for their education. Filing separately allows the student spouse to receive grants/scholarships/student loans to pay for their education without placing the non-student spouse under a financial obligation.
One reason that was also not mentioned and that most people aren’t aware of is if one spouse has a significant amount of student loan debt and qualifies for Income Based Repayment (IBR) and the other spouse makes a significant amount of money.
In my case my soon to be wife will be graduating with over 200,000 in student loans. With IBR she will only have to pay ~160 per month. If we file jointly the payment will be 1,500 a month since my income will be taken into consideration! IBR does not require my income to be taken into consideration if we file separatly, which is very nice and easily offsets the tax penalty I’ll be paying
You would be paying that torwards the loans and interest on the loans instead of just giving to the government.
I am in a situation, where I do not know what to do. My husband owes a lot of back child support.(prior to our marriage) I worked all year and finacially supported my five children. I know I can do injured spouse, but I am not sure if I want the IRS to decide what happens to my refund. I will very upset if my refund goes to the other women. I have thought about filing separately, I know I can’t claim earned income, but that way I don’t have to let the IRS decide. Any thoughts???
I have the same issue, new husband owing back support and not wanting my refund touched. Do I file separately?
I’ve been in your shoes for a few years now. My husband owes back child support. They take our refunds every year. Once you file, you will want to send in an “Injured Spouse Claim Form”. This form will force them to look at your taxes and seperate your refund from your spouses. Your spouse’s refund goes to support and yours goes in your pocket.
I hear both of you with the husband and child support. I was a single mother for 8 years raising my three children, my ex never paid a dime in child support for 6 of those years. My now husband and I were married almost two years ago, finding out about back child support should have been discussed when you were planning the wedding. My husband went into this marriage knowing I do not receive a dime from my ex and that there is nothing we can do about it thanks to shady doctors who continue to give my ex temporary disability papers for a year at a time which exempts him from paying child support. I am very proud of my husband and the fact that he pays his child support, however if he owed back support then I would want to help him catch that up so that his children were taken care of and that bill would be off our heads. The comment that you don’t want your money going to “the other woman” is such a bad way to think about it, he is paying to support HIS CHILDREN, shouldn’t his children have the same oppertunities that yours do? Shouldn’t they get the same support from him as your children get from him? Fair is fair. I am sorry if you don’t like this post but these are innocent children that are suffering and what is right for your child/ren should be expected to be right for his.
@Married with stepchildren: Wrong wrong wrong.. Why should the ex’s new wife be responsible for “financing” the existing children when the paternal mother gets to claim the children and not have child support shown as income? Child support is over inflated as it is. And even if she were getting child support, the system is designed for the father to pay those taxes on income that is redistributed to the ex both paycheck and at tax-time. They are not her children to support even if her dead-beat husband doesn’t pay for them and she shouldn’t be financially responsible because she is considered “an extra curricular activity” according to any judge. The primary family comes first and above all, you should know that as do I. The part about “your” ex having a disability is considered through the Fed and apparently you have child support building up in a state in which he filed under and just don’t know about it. You cannot file a disability and get a full credit when your in the support system and if so, he wouldn’t be getting as much so that money he isn’t getting is definitely somewhere, building up with interest paid by his benefit deduction. If you disagree than every dead beat dad would be doing this if that were the case!
Im going through a divorce. What are the benefits, if any of filing seperate? My(ex)husband and I make almost the same amount of money, but our 3 children reside with me.
Lucky for me I’m marrying a guy who does not owe back child support. My question to all of you is, once we’re married can I avoid having my income included in the father’s net worth when child support is calculated. I live in California so I’m sure laws are unique to the state. I’ve heard two conflicting stories. one, we can file our taxes Married but separate and my income will not be included in the father’s net worth. Two, the only way to avoid this is to not get married. Any one know the correct answer. Please help.
I do not know the laws in California but I dealt with this same issue I do New Jersey. My ex took me back to court after I remarried because she was told she would receive an increase in child support because of my wifes income. Once I was served with the paper work from the court I did my research and also hired attorney and found she was completely wrong the courts only looked the legal parents income when calculating child support and being I made less and she made more from when the child support order was issued her greed cost her lawyers fees and $45 dollars a week. Also with the women whos husbands are behind on child support I don’t know there specific stories or why they are delinquent but come step up and pay for your kids I am buy no means wealthy and I carry around a 1500 surplus in my child support account
Despite what the “experts” claim all over the internet, there actually IS a valid, financial benefit to Married Filing Separately in New York State – at least through the 2011 tax year. If a couple makes over $300k combined, they will be subject to the recapture rule, which effectively eliminates the lower rate applied to the amount < $300k. The rate on ALL of the income will be 7.85%. HOWEVER, if the couple each make less than $300k, then the effective rate will be in the 6.5% range, depending on the income. For example, John and Jane Smith have taxable income of $175k each (350k combined). They would pay $27,475 in NYS tax filing jointly. Filing separately, they would pay about $23,800. Depending on circumstances, Federal tax may be adversely affected, but in a relatively simple scenario, the Smith's would realize a net overall benefit of $3400 by filing separately. Mathematically, it's quite simple, for those with combined income over $300, but separately less than $300 each, the net overall benefit is about 1%.
We are filing married filing separately this year because my husband has $60,000 in student loans and we are going to file for income based repayment. We each made about $25K in 2011 so if we filed jointly our adjusted gross is about $49,000 which means our student loan payments would be adjusted to about $200 (down from the $387 he already pays). But, if we do married filing separately, the refund is obviously going to be less from the IRS but when we do the IBR filing for the student loans, our payment will be $0 based on my husband making less than $35K last year. This nets us an extra $200 per month or $2,400 over the next 12 months. So we might lose some money on the refund now but the IBR of $0 over the next 12 months more than makes up for it in the long run. This is definitely a scenario where married filing separately makes sense. Anyone trying to do IBR should try married filing separately to see if it would benefit them.
If my wife and I file separately and I do a itemized deduction does she have to do the same or can she do a standard deduction.