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When Does Married Filing Separately Make Sense?

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Married Filing SeparatelyAfter 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:

  1. “Filing separate returns makes the most sense when one spouse owes a significant amount of money, but the other spouse could get a refund.”
  2. “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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312 Responses to “When Does Married Filing Separately Make Sense?”

  1. Morland says:

    I would like to file separately from my new wife ( I have my reasons). She has no job and hasn’t filed since she quit working before our marriage. Because I am filing separately with my own income, does she have to fill out a tax form also or because she has absolutely zero income am I the only one who files (albeit separately)? Thanks!

    • Just from a numbers standpoint you would probably be better off filing jointly to capture the married filing jointly rate and her exemption. If you have “personal” reasons that is another story but it will cost you taxwise. Run the numbers both ways to be sure.

  2. Anonymous says:

    if one spouse has a w2 and has taxes taken out threw out the year and the other spouse has 1099′s and no taxes taken out the tax bill looks like it will be large and no means for payment ecomey downsized to no employment for 6 months of the 1099 spouce

    • Rob says:

      I am in this situation (or will be next year – found out my 1099 spouse hasn’t been making payments at all this year). I make 7x as much and I am a W-2 employee. I will need to at least explore filing separately next year.

  3. Dom says:

    My wife is in community corrections, and she worked all last year, I worked as well , but made mostly cash, with about 5000 taxed income, we had our baby on dec 12 2013, we have no idea how to file, and to jointly file is almost impossible since she is incarcerated till July. We need the refund to help our baby girl, how would you go about it?


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