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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
| 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.
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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.
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.
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
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.
Meant to say: “having to worry about the penalty is NOT worth it”
Sorry for the reposting, but how can we edit comments??
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.
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.
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.
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!
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!
Same here! Jointly Ohio had me owing 200. Separately gets me 450 refund. I-File came out the same as Turbo. I’m still scrutinizing before I file.
Jack: No reason to continue to scrutinize. I live in Ohio and have done MFS for the past few years since a CPA friend told me about it.
I have always done the same in Ohio. This year we would have owed 500 together, but instead get 350 by filing seperate.
Filing separately also works pretty well where one spouse is an American citizen and the other is not (and not earning US income).
If either person is a student you give up all the deductions that go along with being a student, including student loan interest…
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?
We are bothretired I’m 82 and my wife is 84. I recieve only Social Security and she has in come from investment and small SS plus plus a federal annuity. We are considering filing separately. using notice 703 on the back of form ssa-1099 I don’t owe any tax and need not file?? What shoud I do?
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.
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.
Wow you’re right, my math was off. I corrected it above, thanks TFB.
The scenario where I think it makes sense is for couples who are married and living with one set of parents. If they file jointly then they can’t be claimed as a dependent (in most scenarios).
I am subject to the AMT and make enough so that the exemption is fully phased out. In that case there is little difference for me filing as married or single. My wife just started working as a teacher with a very large disparity in our income levels. I think my wife can avoid taxes for her income, and I couldn’t deduct state and local taxes or get exemptions for our 4 kids anyhow.
This seems to hold promise.
My husband and I were married in June. Before that we were college students. My parents paid for my college and wedding (lucky me!) but they asked if I would let them claim me as a dependent since I was for half the year and they did dish out a lot of cash for me. My husband’s parents did not support him and would not need to claim him as a dependent. What to do? How bad will it hurt me to file separetly for one year?
I may be looking at filing separately this year. My wife works part time, and her income is significantly lower than mine. She’s had a lot of medical expenses this year (she reached the out-of-pocket max for the year) so it may work out for once for us to file separately. I have questions, we have one child, do we just choose which of us claim him as a dependant? Also, how do we handle out itemized deductions, such as mortgage interest, etc. Can we write them off on whomever we choose, or are there rules to which spouse can take the deductions?
Your template makes an assumption that married people always live together in the same place.
I am contemplating filing separately because I work and maintain an apartment in Philadelphia away from the family home in NYC and have a double tax liability and NYC/NYS taxes are higher. Of course, I would have to formally become a Pennsylvania resident, change liscenses, doctors, place of worship, voting, et al to demonstrate intent but the differential in avoiding the 12% NYC/NYS tax liability and only adding 2% more Philly residential tax might, finally, get me out of the 60% overall tax liability category. Add to this that my spouse makes 1/3 of what I do and is in a lower category . . . together, we come out at 33% fed level, separately spouse is 28% and I am 35%, those numbers work out to only a $1,000 savings on fed, per your chart.
How about a couple, nearly matched in salary. Combining their salary, they are raised to a higher tax bracket. Individually, they are in lower tax brackets. Put all the tax deductions on one, which lowers that one to an even lower bracket. One person pays in, and one person gets a massive refund, but the net result is that more refund is retained.
This scenario would have worked for me and gained an extra 2k, but alas, the other half wasn’t interested in re-filing.
It is retarded that we have to resort to this kind of trickery. Help promote the FairTax.
i am confused as to whether my husband and i should file jointly or seperately….he made around 65,000 and i made around 31,000…we just got married in october of 08…whats the best way to save money?
I am plannig to file for Divorce however Husband and I are still living in the same home.
I recently found out he is 1099 for this year and has paid NO Federal taxes the entire year. He hid his financials from me (lied) and MAYBE will show $25k on his 1099, perhaps 30k. I am also employeed, part-time and my w2 will show near the same (29k) with full, no exemptions, taxes taken out.. somewhere around $2900.
I want all my taxes back however I live in WA (Community prop state).
Do I have to file jointly or can I file sep and get my full return…making him responsible for his portion? Seems unfair for me to lose out on what I paid and have to cover for him.
thanks.
We have several reasons for filing seperately. For one, we each own a house, bought before we were married, so seperate property. He rents his out, we live in mine. I do not want to be responsible for any profits he made off of his house. Also, I have a child from a previous marriage that he cannot claim and that I pay most costs for from my own paychecks (child care, etc). We miss out on at least two credits having to do with children if we file jointly because our combined incomes exceed a certain limit. I also cannot write off my student loan interest that i pay from my own paycheck if we file jointly because we exceed the $71k limit for that. Because we had our own lives before we were married and the deductions we miss out on are all mine paid from my own pocket, it doesn’t make sense for us to file jointly. We even have our own bank accounts, why would we file jointly?
I think I fell into a rare category this year. Like Steve I live in Ohio and with Turbo Tax I tried figuring both scenarios. For some reason this year, It worked out slightly better for me with Federal tax and much better with Ohio. I itemize and do not use any of the special benefits that come with filing jointly as I am on a retirement system that is tax deferred. My wife makes about half what I do and I think together we were in the 25% bracket and separately she drops into the 15% bracket. I took the itemized deductions but she was still left with state and local taxes from her W2 that she could itemize. All this benefited slightly better for federal but changed Ohio taxes from me owing 200 to getting a combined refund of about $450. I plugged the figures into Ohio I file and ended up with the same amounts as Turbo gave. I didn’t hit the “File” button yet as I am still afraid to send it without checking it every which way.
My wife works and also has her own business on the side that is run out of our home. All together her income is approx. 32,000, but my salary is about 63,000 and we have 1 child. I am also paying some business expenses such as storage, gas & electricity. She just told me she wants to file seperately, but I am afraid she will get a nice refund and I will be stuck with pennies. Am I correct in this assumption?
Another reason to file seperately is that you need to send your exwife your tax forms because of child care and you don’t want her to know how much your wife makes. None of her business!
Welcome to my boat.
I was filing taxes with my husband as meiied filing Jointly. Now I am staying seperately from him but did not file for divorce yet. I have no intensions of filing my tax returns jointly with him.
I would like to know if I should file my taxes as single or married filing seperately.
Please Advice.
Since you’re still married, your choices are MFS or MFJ.
MFS exists to enable one spouse to avoid the potential tax liabilities incurred by the other spouse which are assumed when filing a joint return. A higher tax rate and faster phase-out of credits or no credits at all are just some of the disincentives used to discourage using MFS for any reason other than this. In general, I tell my clients to avoid MFS just for those reasons. There are exceptions.
Couple of observations:
Scenario 1. After the standard deduction ($10,900) and personal exemptions ($7,000) the MFJ tax is $13,219. After the standard deduction ($5,450 each) and personal exemptions ($3,500 each) the total MFS tax is $15,533 ($14,273 + $1,260). The difference is $2,314.
Scenario 2. In this case, especially if they live in a high tax state such as New York, it would probably make sense to file MFS. The reasoning is that with a joint income of $200k it’s likely they’ll incur Alternative Minimum Tax (AMT), which would add several thousand dollars to the tax bill. (AMT cannot be explained in 250 words or less, try Googling on it if you want to know more.) Individually, however, the returns won’t incur AMT because they’ll be beneath the threshold. Unfortunately, determining the exact tax depends on the exemptions claimed and deductions used.
Scenario 3. This again depends on the exemptions claimed and deductions used. Basically you have to run both the MFS and MFJ scenario.
Suppose you’re a student who earned some money at a job during the year. If you’re eligible to be claimed on your parent’s return you cannot claim yourself as an exemption or your own return, even if your parents don’t claim you on theirs.
Often it makes sense to file the Federal return MFJ and the state returns MFS.
If you file MFJ you can’t later change to MFS after the filing deadline has passed. You can go in the other direction, however.
I have separated from my husband. Am I reading the above information correctly that by the fact I filed separately I will not be held responsible for his taxes?
That’s right. If he, for example, fails to disclose income, you won’t be held liable for the extra taxes as you would if you filed MFJ. You don’t even have to be separated to file married-filing-separate (re. John McCain and his wife)! You just have to be married. Of course, you’re still on the hook for previous years that you may have filed as married-filed-jointly. If you’re legally separated or divorced you can file as single, or if you have child dependents, you can file as head-of-household. These two filing statuses are far more advantageous, tax-wise.
Thank you! This takes a big weight off my shoulders. Next year, I should be able to file as single.
Couple of other notes. Your marriage status as of December 31 determines your filing status for the entire year, i.e. if you’re married the entire year and your divorce becomes final on 12/31 then you’re either single or head-of-household for tax purposes. If one spouse chooses to file MFS the other must also file MFS. If one spouse itemizes the other must also itemize, even if he/she may have zero deductions (the standard deduction, $5450 for 2008, cannot be claimed).
Thanks, Dankos. I’ll keep that in mind.
Dankos,
I got married in Oct 2008 and now we are annulling the marriage. Because annulment means the marriage did not happen in the eyes of the state, do I file MFS or Single?
PLEASE help!
My wife and I are separated, though not legally. Everyone do their own thing. She lives somewhere else but collects her mails at my house. I have the kids and do everything for them. Can I file head of housewhole instesd of MFS.
You’ve hit on the one exception to the rule that if you’re still legally married your only option is either MFJ or MFS. That is if your spouse has been absent from the household for the final 6 months of the year and you have at least one dependent child you can file as head-of-household. Look at the IRS Publication 17 at about page 22 “Head of Household” (http://www.irs.gov/pub/irs-pdf/p17.pdf) for other requirements. Note, a dependent child, according to the IRS rules, can be a parent or close relative, see also Pub 17. Also the only separation the tax code recognizes is legally separated.
Is this a possible MFS situation?: I finished law school mid-2008 and received large signing bonus and $150k/yr salary starting 10/08. Everything was w/held at 33 and 34% rate but W-2 income for the year was approx. $60k because only worked part of the year. Wife is teacher and has W-2 income of roughly $37k. when I put my info. in TaxCut I get a refund of $5200, but the minute I put my wife’s in, drops down to $1300. Thoughts?
Depends. What are the refunds both MFS returns vs MFJ? That’s the bottom line. Sounds like the MFJ return incurs AMT (is there an amount on the 1040 line 45?) whereas neither of the MFS returns would, thus resulting in a lower tax. If line 45 is zero, it’s something else.
I have a question and I’m hoping someone can answer it for me?
I want to get married and my fiance and I do not live together. We live far apart and will be doing so for sometime, due to him being in the military, and my job being secure at this point……my question is would filing jointly or seperately be better for us…..I was going to file seperately because he makes in the mid 60’s, and I make in mid 20’s…..so I’m looking for some help with this……
I’ve researched and researched and maybe we shouldn’t get married for a long time due to the tax issues…..
Also, does someone filing bankruptcy make a difference when your filing your taxes???
I have totally screwed up our taxes. My husband and I have filed jointly since the beginning. Several years ago I totally neglected my end of the taxes (as an independent contractor) now I don;t want my husband to end up paying for my screw up. I am considering filing separately. We both make about the same thing and have 2 children, no ROTH IRA’s only pensions and 401 k’s.
What do you suggest?
Your husband will still be responsible for the taxes owed from several years ago because you filed jointly, filing separately in the future won’t change that. At this point I recommend contacting a tax attorney for professional advice.
Really nice article,
I have a question, I live in Virginia and my wife lives in NewYork because of my new job I had to move here this year. I am trying to call my wife here soon but you know economy recission it’s not easy to find a decent job and I don’t want to loose her job from NY. Anyway, my question is I filled ‘Married filled jointly’ last year in NY when I used to live there but since I am here in VA can I still file taxes with her?.. If yes, then what’s the proper way for that either Jointly or Seperately?.
I also have a question that can I put her as dependent on my Tax documents or should I put it 1 only? I am new to this system I am trying to understand.
Thanks.
If you are married, you probably want to file jointly because a lot of the phaseouts for various things are dropped to some ridiculously low level if you file separately.
I have been filing my brothers taxes for a long time. For 2008 he got married and filed an extension. He had taxes withheld from his W2 and also paid $32,000.00 in additional estimated taxes for 2008 due to his investment income.
As he was filing his taxes with her CPA, she told him that he needed deposit additional funds to the IRS. I came to find out that she had taxes owed from previous years of more than $35,000.00 Now, should my brother file jointly and advise her CPA that he want’s a complete breakdown of his/her income, expenses and taxes? Or file separate.
I appreciate any response.
Be careful filing MFS; the IRS hates it; you will not qualify for certain tax credits.
My husband and I were married last November and filed jointly on our ‘08 return. Our ‘08 refund was withheld and applied to back tax debt from when my husband was unemployed or did contract work.
I just finished grad school and have over $70,000 in student loans. I’m not working and am having a baby in January. I briefly had a part-time job from which I earned about $4000 for 2009.
(Continued–why did the website think this message was spammy?!)
My husband will gross about 85 grand for this year (2009) and still owes about 2 grand.
However, offsetting these earnings are burdensome mortgage payments from a lengthy period of unemployment (we just barely escaped foreclosure), $8000 a year in child support for his son (my stepson, whom is not claimed on our tax return), and credit card payments for $10000 in expenses incurred during our respective periods of unemployment. After these and our other living expenses, including utilities, medical appointments, and food, we have nothing left. We have no savings; I have a couple IRA accounts but there is less than $1000 combined.
Further complicating this issue is the fact that I will begin repaying my student loans next month.
With $70,000 in student loans, my monthly payment if we file jointly (even using the income-based repayment) is $790, which is absolutely untenable for us right now.
(Continued–this is not spam! Question is at the end of this post)
Conversely, if we file separately, my monthly payment would be minimal, possibly even $0. I recognize this is a Temporary solution, and I Absolutely plan to repay my loan obligation, but to me it seems MFS would be the best option while we are getting our feet back on the ground, his tax debt is eliminated, our credit debt are paid off, I am able to find work, and we are better able to handle the monthly student loan payments.
My question is: will we be Able to file MFS for 2009 since we already filed MFJ for 2008? Will we be able to file MFJ in the future if we file MFS for 2009? What difficulties will arise if we file MFS after our baby is born? I appreciate any help you can provide.
Husband and I will be filing separately this year after 20+ years of marriage. He is self-employed and has always struggled to pay quarterlies and every year owes the IRS $40,000 – he’s a compulsive spender, too. We have second and third morgages on the house, plus credit card debt in order to keep afloat of the IRS.
I, on the other hand, recently went back to full time status earning about $33,000 a year. Always worked part-time and TRIED to save a little for the kids college and other expenditures.
Once again, he owes $40,000 and there’s no where to borrow from, the IRS will swoop in and garnish my wages and levy all college accounts and savings accounts I have to pay for his SHORTCOMINGS! Sounds cruel, but the man will never talk about money, it’s never a good time for him.
I want to protect my kids’ education that I have worked so hard for by saving and clipping coupons and driving old cards – meanwhile vacations and drinking/dining out are his main priorities, and probably always will be.
How does loss from passive real estate figure in to the MFS vs MFJ? I make over 120,000/year and my husband under $25,000. So, I think we hit the bracket difference to start with. We have rental property that has been an absolute nightmare – not only with tennants, but with the property being a lemmon all on it’s own. We were enjoying nice losses on our tax returns by using the “real estate professional” so that all our expenses could be taken as a loss each year. We were audited for 2006 and 2007 and they are now saying we cannot consider my husband to be a real estate professional because he is actually a W2 wage earner – but he spends at least 750 hours a year at the property.
Cut to the chase – because our combined income plus the piddly 10000 / year rental income exceeds the $150,000 total, all expenses, including mortgage interest, are disallowed because we cannot use the “real estate professional” loophole. I’m thinking the MFS would not only drop my husbands tax bracket, but would allow us to perhaps get some passive loss deductions on the rental property.
Running both MFS and MFJ will be a chore becuase I’ll have to play with which one gets to claim the 2 different mortgage interest and which one gets the rental income, etc. Thought perhaps someone might have advice
If you have student loans and choose Income-Based Repayment, your monthly payments will be lower if you file separately, because on your income is taken into account.