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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. Stacey says:

    We benefitted by married filing separately for our unique situation. While my husband and I did not have a huge disparity in earning, we each owned our own homes prior to marrying. A few months after marrying, he accepted a new job two hours away and had already (prior to marriage) purchased a home there which we initially considered a second home but which became primary residence for him once he started the new job. With each of us having a home and mortgage in our own names, it financially benefitted us to file separately rather than jointly. Our accountant ran both scenarios every year and each year the same made sense.

    • Bert says:

      Why was it better for you guys to file separately ? We are in the same exact situation and it seems that the AMT will get us by a lot more if we file jointly rather than separately. I think when you calculate the AMT and file jointly, you can only deduct one mortgage interest payment but if you file separately and each person assumes one mortgage you can deduct both.

  2. Rose says:

    Household retirees on social security: husband and my elderly father each having pensions. Since I take care of my father, Alzheimer’s and physically limited, and taking care of my disabled husband,(I do all everything for the household. I am considering filing separately from my husband and claiming myself on my father’s tax return. Would it be wise to do so when we all reside at the same address? I haven’t done the paperwork as yet to see the advantage either way. Oregon tax is not being taken out at all due to changes in our state. (regarding their pensions)

  3. Diana R. says:

    Well I just discovered that by filling out the w-4 as married/zero exemptions that significantly less taxes were taken out then if I had filled it out single/zero exemptions. Now I owe 800.00 when before I always got a refund. To what benefit is it to take out less money if you still end up owing the same amount in the end. Frustrating and surprised.

    • Stephanie says:

      Because if you overpay, the government gets to use that money to make money for themselves, but if you underpay, you can invest that money and make money for you. By paying more than you should, you’re allowing the government to make money off of you.

  4. Rose says:

    Please send message to email address.

  5. Jessica says:

    My husband and i have been married for 5 years, we have always filed MFJ, we have two children together and i have a son from a previous relationship. Every year we go through a fight with my sons dad on who should get to claim him, he is legally my husband and i’s dependent. This year he beat us to filing and now our situation will become a long drawn out deal. with that being said, in work from home,and after all deduction only end up making less than 10,000 a year my husband makes about 44,000. In order to free up my husbands part of his taxes should we file MFS? or is there a better way to do this??

  6. Sarah says:

    I live in california and my husband owes back child support (which he pays every month), he recently got custody of his son. We could really use the refund money for bills, how should we file so we can keep are refund money from getting taken by child support. We were wondering if Myself filing seperate and claiming his son would help.

    • Jenna says:

      My first husband owed back childsupport. We filed jointly but I filed an “injured spouse” form, which kept the IRS from keeping my portion of our return because I was not responsible for his back child suppport.

  7. Rebecca says:

    I provide home daycare and made a little over $14,000. My husband makes a little over $100k. The deductions I am able to take seem to offset our refund amount. Would it make more sense for os to do MFS pr MFJ? We live in MD

  8. valentin lyubarsky says:

    Yet another reason to file separately, seems to me, is this. I’m over 70 have no other income than SS and my 63 y.o. wife makes about 140,000. Filing separately my $ 23,000 SS I will be able to withdraw from my IRA paying much lower tax(if at all) – don’t I?

  9. Rich says:

    How about when one person has filed bankruptcy and will be sending the tax return to the trustee for the next five years. The spouse was not included in the BK, so the spouse gets to keep the return. My lawyer advised me to file MFS.

  10. Amy says:

    What about married couples with dependents that would like to claim the EIC? I thought that filing MFS would allow me to get the EIC credit for my 2 kids (upwards of $5k) because my income alone brings me down low enough, however, I found the answer on about.com:

    “Finally, you cannot claim the earned income tax credit if your filing status is Married Filing Separately. However, if you and your spouse are separated and your spouse did not live with you at any time during the last 6 months of the year, you can file as Head of Household and claim the Earned Income Credit.”

    http://taxes.about.com/od/deductionscredits/qt/earnedincome.htm

    • vita tax preparer says:

      whats the question? income limits are as follows

      1 child : 35,000 (not exact but in this range)
      2 : 40,000
      3 : 45,000

      • lisa says:

        My tax question is:
        I am married I earned about 105K my husband’s only income is about 20K disability.
        He sold a family home this year and did not yet reinvest. Thus a capital gains issue I think.
        I have mortgage interest and taxes of about 40k per yr to deduct as well as my dependent child from a previous marriage.
        Should we file separately?
        Lisa

      • Tina says:

        I have a question. My fiance owes the IRS, can I still file and they not take my money, and how should I do it MFJ, or MFS?

        • Tara says:

          Oh my, my DH and I have been married for 4 years and I found out the hard way he owed back taxes. The money he owes from before you were married are his responsibility. But that will not stop the IRS from ASKING you to help pay once you are married. Once we were married I found out that he was not making his quarterly self employed payments, when it was too late. He did not have enough saved at the end of the year to pay the IRS, and I filed jointly. This meant that the house I owned prior to our marriage now has a IRS lean for his unpaid taxes. If w divorce the lean stays. Once you are married, if he continues to not pay the IRS can hold you responsible. I should of filed separately. Even though DH has a 9-5 job I will always file separately. The couple thousand dollars difference is not important to me compared to the late fees for one year are over $6K.

  11. Bert says:

    Here’s one more reason:
    If you want to rip off old people – My Dad and Stepmom have been filing married filing Separately for years. They are both in their eighties, each collect social security, and each have small IRA accounts that they draw from. Their CPA encourages them to “keep their money separate” and file separately as well. By my calculations, they don’t even have enough taxable income to require them to file at all, but he has them file and collects a big check from both of them! Last year, their tax liability was over $2000 and he charged them over $500! I’m banging my head against the wall trying to explain it all to them!

  12. theresa says:

    What about the scenerio when one person has been subject to identity theft? This creates chaos with the IRS. Any refunds that would be entitled – I would think – would get hung up in the process of sorting things out. This is the situation I am in. I will need to explore this further.

  13. Amanda says:

    I’m confused on what to do! I’m married and haven’t been able to afford a divorce, I’ve been separated for over 2 years, but still legally married. My “husband” wants me to file jointly because he ran his taxes and will owe $1400, but I want to try filing separately (which he’s really angry about) I barely made anything last year, worked 2 seasonal jobs and had to go on unemployment. We also have a son…who knows who’s gonna claim him! I can’t even afford my own place, I had to move my son and I in with my mom while he kept the house! Question is: If I file MFS can he make me pay any of what he owes on his taxes??? I just don’t know alot about filing taxes and what to do in this situation! Any help would be great!

    • Tara says:

      You should to file separately when you are legally separated. Do not let him bully you. And you have no control over what he files to the IRS, though you will be on the hook for anything he owes. Whereas if you file separately you may be able to enjoy a return. Why should you give up your return? You earned it? If you file jointly he in essences gets your return, though he earned more.

    • Yara says:

      If you are seperated for more than 6 months you can file head of household.

  14. Ann says:

    My husband owes for back child support and his income tax refunds are taken every year until he pays the past due balance in full. How should I file my taxes to prevent mine from being taken; MFS?

  15. shannon says:

    My husband has a federal offset for some students loans. I would like to file seperately, so we are not offset for his return. Can I do that?

  16. Cassi says:

    What about my situation. My husband and I both make approx 32k each. for more than half the year he was claiming Married and 9 then he changed jobs and claimed married and 2. His job at the beginning didn’t hold out any Fed. taxes, only State. I claimed married 2 the whole year. He has had about 600 a month in medical expenses, we have about 7000 in child care, and a couple thousand in mortgage interest… would it be better for us to file MFJ or MFS? We live in Arkansas.

    • Brandon says:

      Even with the information you gave, it is almost impossible to say without running the numbers both ways and knowing your complete tax situation. Typically at your income level, I would not think MFS would be advantageous, but claiming those medical expenses could tip the balance (as you would only be able to claim the amount over $4800 if you filed together but can claim over $2400 separately). That said, you would also be forced to itemize at this time, so that could offset it in a bad way. I think it is worth running the numbers both ways.

      One thing that I have to add is that the number of exemptions he claimed throughout the year has no bearing on the total you have to pay for the year, it just affects whether you paid it before (by having it withheld from the paycheck) or if you pay it now (lower refund or higher payment owed).

      I wrote a longer comment about a somewhat similar situation above:
      http://www.bargaineering.com/articles/when-does-married-filing-separately-make-sense.html/comment-page-1#comment-337690

    • Cassi says:

      I did our taxes last night online, I haven’t hit submit yet, but this is how it worked out. I made about 29000, my husband made about 33000. We have the standard deductions and credits, of mortgage interest, daycare, and medical expenses, we make too much to get the EIC, and were actually just a few hundred shy of things being advatageous to itemize. I figured our taxes both ways to see which way would work out in our favor. both times I did state at MFS. If we are going MFJ on federal we will get a $948 Federal refund and 560 State refund. If we file MFS we owe in $3400 to federal but we get back 1675 on state. Obviously we will be going with the MFJ for Federal and MFS on State. I don’t know if this works out the same if you are higher or lower income. But it worked this way for my situation. I would suggest running the numbers both ways. Getting a refund is definately preferable to paying in!

  17. Zebo says:

    So the bottom line is. If you and your significant other are making good money and you plan on getting married–don’t.

    It seems the tax code is anti-marriage.

    • Tara says:

      The people who get the best deductions is if there is a large disparity in incomes…a.k.a the stay at home spouse. The codes never thought about two high income earners.

  18. Tim says:

    MFSeparately is the only way to file for our situation. One U.S citizen living abroad with a non resident alien choosing to file resident alien status. The combined income tax is much higher jointly than the separate taxes because of the foreign income exclusion. We are taxed at the combined rate 136,000 then the single 72,000 rate is excluded, leaving a massive tax debt. Separately, the foreign income is totally excluded leaving only the U.S source income taxed (albeit with absolutely no deductions except for IRA.)

  19. Rick & Kathy says:

    We live in Nevada, and I believe that is a community prop state. My wife is an RN and earned twice as much as I did. No Roth IRA. Would it be more beneficial to file Married but Separately?

    • Justin says:

      Community property state has nothing to do with your federal filing status- primarily it just means that if you get a divorce you’ll have to equitably divide your property (as all of it acquired after marriage, with some exceptions, is deemed to be the joint property of both of you). For federal filing, it all depends on your income, your deductions, etc. Your best bet is to do your taxes both ways and see what the final result is.

  20. Julia says:

    I’ve seen a few others ask a similar question, but none received an answer, so I’m hoping someone might be able to answer this for us all.

    I’m married to a non-US citizen. My husband is a citizen of a foreign country, has not lived in the US at all for the past 2.5 years and is not even a US resident. I am under the impression that he doesn’t have to file taxes. Is that correct?

    My husband has had no income in the past year, owns stock, but has overall lost money on his stock investments in the past year.

    Can I file MFS without him filing at all? Or would he also then have to file MFS?

    Thanks,
    Julia

    • Tim says:

      If your husband is not a U.S citizen, does not live in the U.S., and he has no U.S. based income, then he is not required to file anything in the U.S..
      In certain countries (Canada and Mexico for sure) he can decide to be taxed as a resident alien to allow you to file jointly and gain the favorable tax rate; however, if you don’t go this route then you will file married filing separately and use him as your spousal exemption. If you use him as spousal exemption, he will need to apply for a ITIN number to identify him to the tax department. If he does not want to get this number, then you can’t use him as a deduction and you still file married filing separately without the spousal deduction. Hope this helps

  21. Alexander says:

    I have the following question:
    My wife and 6 year daughter live in Berlin, Germany. She has not been at all in the USA in 2009. She is a PhD student in Berlin. She has not earned anything in the US in 2009. Under the federal return tax return rules if someone is a college student and not in the country they are considered to still be a US resident. My wife and I have an apt. in New York City. My wife’s mother lives in this apt. I am claiming my mother-in-law and daughter as dependents in federal return and filing jointly with my wife in federal return. As far as New York goes should I file jointly with my wife or separately? My wife has already sent back all the New York State returns signed with all the possible options for filing having been taken care of.

  22. Natasha says:

    I’m married and always filed joint. My husband and I made roughly the same amount. We have two kids, once had a house and I have enough medical bills to itemize. I recently got a raise $10K more than my spouse, but, we no longer have the house interest. I still have medical bills, but since the raise, I no longer can itemize if we file together, because it becomes less than the 7.5% AGI. If I file separate, I can qualify to itemize. If I file as married but separate, does any of us claim Head of Household if we split the children as dependants?

  23. Deb says:

    what if your husbands business owes back taxes and when filing jointly the returns always get grabbed by the IRS.

  24. Anna says:

    Hello, I live in WA state(community property state with no State tax).
    Me and my husband are getting divorced, but it’s not finalized yet, and we were living separately for more than 6 month during 2009. We have two houses, one was used as rental while we were living together, but after we separated, I moved to that house and it’s became aprimary residence for me.

    The question I have is if we can itemize the interest on both houses if we file married filing separately? I hope we do because it’s a huge portion of expenses.
    We also have one son, he spends 50 / 50 time with each of us, and I used $5000 FSA for dependent care expenses at my work – will we be able to claim that deduction? (I have qualiied expenses – daycare, summer camps, etc)

    I was trying to read Pub.555,but it’s so confusing!

    Thanks,
    Anna

    We have no problems sharing financial info and splitting the refund (which I believe we’re supposed to get), so no problem with that.

  25. lisa says:

    ok im considering filing married separate and here is why explain…
    1) I earn about 105k
    2) my spouses only income is disability of 20k per year
    3) he sold his family home in 2008 did not buy new property and thus has a capital gains issue
    4) I have a dependent child and own the home that we live in I pay all of the bills and they are not in his name
    5) my mortgage and real estate tax alone are about a 40k deduction that I could take
    6) i do not have any other asset
    What do you think???


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