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 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)

{ 312 comments, please add your thoughts now! }

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312 Responses to “When Does Married Filing Separately Make Sense?”

  1. Madhu says:

    I have a peculiar case and need your opinion here
    1) I am staying & working in MN and make close to $60,000
    2) My wife is staying & studying in WI and she has an on-campus job, earning close to $10,000.
    So basically our state of residence is different and so is our tax bracket. So I am not sure whether I should be filling jointly or seperately.
    If I am filing jointly, I would end up paying a lot of state tax to WI.
    We do not have any student loan, however I am supporting her tution fees and I suppose that would be taken into account irrespective of whether we file jointly or seperately.

  2. Lynnz says:

    I’m 60, my husband is 50. I plan to retire at 65. We don’t make a lot of money (joint filing this year, bottom line $47,000). I will get about $1,000/mo. Social Security when I retire. Would it benefit us to file separately when that time comes?

  3. joanne says:

    I am married but have been seperated and living apart for over two years. I live in my house(owned before my second marriage) with my disabled son (from marriage #1)Several weeks ago I filed my taxes claiming HOH and itemizing on both my federal and state (NY) returns. I just recieved my refund today. My estranged husband knew of my filing status and the fact that I itemized. He is now claiming that when he does his taxes he will NOT itemize but will take the standard deduction. Will I lose my deductions (36K) and now be forced to take the standard and repay the difference?

  4. BobbyG says:

    Last year I was unemployed the entire year, drawing only about $12k in extended unemployment benefits (the first $2,400 of which, the state advises, is exempt from taxation).

    My wife, however had to take a job in Sept 2008 requiring that she relocate to California (our home is in Nevada, where I still live). I’m wondering whether filing separately just for 2009 would make sense, because she now has to also pay California state income tax, and it would irk me to know that adding my measly Nevada UI benefits would add to our taxes, both federal and state.

    I am now back at work after a three year layoff (same employer, started up again March 2nd). So, for 2010 we’ll obviously file jointly.

  5. Macloque says:

    My son will be attending college, my wife and I are filling separately would that hurt his chance for financial aid.

  6. Anonymous says:

    My wife is a non US resident with a family business oversea, filling separately will allow her and her company to avoid the all these problems we are facing with US taxes.

  7. sarah says:

    I am separated but still married and husband owes past due child support. I dont want my taxes intercepted (i know about injured spouse form but am trying to avoid the intercept altogether). Will married filing separately protect my taxes from being intercepted?

  8. Justin says:

    I’m thinking next year it might be better for my wife and I to file separately. I will be graduating from law school, and owing a boat-load of student loans. I’m probably going to do the “income-contingent” repayment plan, which sets your maximum loan payment to a specific percentage of your monthly discretionary income (gross income less a certain factor of the federal poverty rate). If you file jointly, the income used for the calculation is based on your joint income, if you file separately, its based on your separate income. By playing with the repayment calculators I’ve got figures of 1200 a month if we file jointly, and 400 if we file separately. That’s an 800 dollar a month difference- nearly 10,000 a year. The tax consequence of filing jointly- at our income bracket (15%) is only about 2-3000- nowhere near 10,000 a year.

    • Beth says:

      Justin, I have the same situation and am meeting with our accountant tomorrow. My husband is about to get his undergrad in criminal justice, and he’s currently a cop. They have a public service loan debt forgiveness program that forgives his debt after 10 years of repayment, so I want him to get on the income based repayment plan (his income is a good deal less than mine).

      I hope this turns out to be a viable alternative.

      • Michelle says:

        I am also in the same boat. My husband and I both went to college after marriage and kids and accumulated massive student loans. We are both in government…However, there is no help with our combined income because it is only set up to recognize one loan against dual income. Talk about unfair. Let me know what you find out.

  9. Ali Smith says:

    The third reason is to avoid having to distinguish one partners earnings when child support payments are calculated. I did not want my income and personal information to be available during support determination. The additional payment for taxes was a small burden versus the child support legal battle. Especially when I make in the high 6 figures.

  10. Jon says:

    My wife and each make a good amount which when MFJ pushes us into the highest brackets – particularly for our NYS return. The only way to avoid this is to file seperately, which slightly increases our Federal Tax but greatly reduces our NYS tax. Thinking about getting a divorce and becoming domestic partners as we will save much more. So glad the tax code is now set up to favor divorce.

  11. Caren says:

    I just married my husband in June and we both own houses. Our income is about equal, however – he is self-employed and owes a lot of taxes – including back-taxes from 2008! If I file jointly with him, then do I have to forfeit my whole refund to pay off his old debt? And is that fair? It’s causing a huge problem as I don’t think I should have to give up my refund, which is my hard earned money, to pay for his business which is in debt at no fault of mine. I didn’t know that tax laws favor singled people, I always thought it was the other way around – or I would have re-considered getting married again.

  12. MIKE ELMORE says:

    I am reading thru this thread on my phone so forgive me if I missed something that pertains to this quesiton. I am self employed. My wife and I file together. We have a daughter and since we have been married and filing together she gets no refund whereas she used to. Am I correct in thinking that her refund is being used to cover MY TAX RESPONSIBILITIES?? If so…wouldn’t this be a situation where filing separatetly would make sense so that just because she married me and I am self employed…she wouldn’t have to see such a drastic change in her refund (now at ZERO)???

  13. MIKE ELMORE says:

    After entering this I see Caren’s post RIGHT ABOVE MINE…lol..oops. My situation is very close to hers except my business is not in debt by any means. But still…my wife no longer gets ANYTHING back. Thank you.

  14. Shannon says:

    Husband earns about $80K; I earn less than $20K (1 W2, 3 1099s). But, my name is on the mortgage (I had a high-paying job and husband had bad credit). Can he claim the mortgage interest deduction if we file separately? He pays the mortgage after all.

    Also, do I have to submit 3 separate Schedule Cs for 3 1099’s?

    • Coupland says:

      I am told that the payer’s social security number on the mortgage has to match the tax return so I assume that you would have to file jointly.

  15. Karen says:

    My father died in 2010. I filed a joint federal tax return for he and my mothers 2009 taxes – they have always filed joint returns. He had some se income and they both had ss income. My mother sent 900 something for 2009 taxes owed. Now she has recieved an IRS notice that they want copies of 2008 taxes. I don’t think he filed as he was pretty ill. My question – can I file their 2008 taxes as married filing seperately? She only got about 6000 ss, he on the other hand was se and recieved ss and may owe up to 5000 for his income. We the IRS try to get money from her

  16. Fred says:

    Why should married couples file as if they were single and lose any tax benefits associated with married filing jointly status, when they can seek relief either as an “injured spouse” or “innocent spouse?”

    I’m astonished by the lack of knowledge and awareness about two distinct IRS rules to address the tax issues of married couples: “Form 8379 Injured Spouse Relief,” and “Form 8857 Innocent Spouse Relief.” Depending on a couple’s particular tax issue the IRS recognizes that economic difficulties in a marriage will occur. These forms can be filed along with the 1040 federal income taxes, or submitted to the IRS separately under certain guidelines. Think about it before you go the “separate” status and lose unnecessarily.

  17. Chris says:

    What I’m having trouble finding information on is: Why are there such disparities between filing MFS and MFJ, and between MFS and Single, in the first place? What’s the point in the rules? If you file MFS you cannot open a Roth IRA (unless you make almost no money, that is) or take advantage of the American Opportunity Credit – even for your own tuition. But if you file MFJ or Single you can. WTF?

  18. Kandi says:

    We got married in October 09. My husband is on SS – in the 13 years we have been together he has not needed to pay taxes. We live in WA,a community property state We were advised to file MFJ and use the injured spouse. We had a refund coming back 2,500.00 The IRS said 1/2 of the $2,500 was due to my husband. So – in stepped back child support (for his kids) and they took the $1,250.00 the IRS said was due to my husband. Sure does amaze us how the IRS can do the numbers and after 13 years my husband gets a refund! LOL, ugggh!
    If anyone has suggestions on how we can appeal – they would be greatly appreciated!

    • Shelly says:

      Why would you want to appeal? He fathered children and owes that money. Just because he is on SS doesn’t void out the need of his children.

  19. Sam says:

    My husband and I got married at the end of the year last year and due to his military status and residency in FL. he does not have to pay state taxes. I on the other hand am a resident who pays state taxes. We filed jointly on federal but since he has nothing to file for state I have to file MFS. My confusion is I have read in different parts that because he has claimed me as a dependent and has itemized deductitons on federal i can not receive any kind of standard deductions. Is this true? COnsidering he doesnt file state and didnt claim me as a state dependent?

  20. Lucy says:

    My husband earns all his money thru investment income. We live in California and I make over $100K a year. Is it possible to fill MFS with my husband filling from a state with no income tax (i.e. NV or TX) to avoid state income tax on all his investment income? What state is considered the best?

  21. paul says:

    Hello Jim,
    I enjoy reading your article. But maybe, because I am not a good “bean counter,” I cannot or do not know how you arrived in your 2008 tax bracket calculation scenarios of filing MFJ $100,000.00 @ 25% tax bracket = $17687.50 tax liability.

    Here’s how I did my computation. $100.000.00 – $10.900(MfJ Std.Ded.) – $7,000.00(w/2Dependant)= $82100.00 taxable income @ 25%(Tax bracket)= $20,525.00tax liability.

    Your helpful enlightenment will be gratefully appreciated. Also, if you will kindly illustrate your calculations for the 2nd scenario, that too, will be greatfully appreciated. Thank you very, very much.

  22. Anonymous says:

    I personally feel the Gov’t is full of crap.Guys like me that make 17,000 ,a year, file MFS because I would like to see a return on the money I work hard for. The gov’t makes laws that tell us we can’t have our own money and on top of it the gov’t says I owe them. FOR WHAT??? The gov’t does not serve me or provide a service to me or my household.I’m sorry if I seem to be crying but It’s not fair to the little guy to have his hard earned money taken away and then told to pay more out of pocket. I work for my family not the Gov’t.

  23. jessica says:

    i worked full time and was a full time student. I have 4 children 3 of which I file on my taxes. My new husband ran off and i was unable to reach him at tax time. It was embarassing and i didnt know what to do so i filed single with my married name on ss card and license. I am being told now that my college financial aid is being questioned that i cant do that. He is back in the picture now didnt work the entire last year and owes arrears in child support. I guess i need to amend last years return, but how should i file now? please help and quick. Time for fall financial aid is running out.i live i MS and do not want to cheat the irs by no means.

  24. Anonymous says:

    I would love to hear more about MFS for the purpose of avoiding state taxes where one spose lives in a no-income-tax-state for more than 180 days a year

  25. Eddie says:

    Whether or not you have a refund coming is irrelevant. A refund means you overpaid. It doesn’t affect your tax liability.

    Suppose your tax liability is $10,000. If you paid $11,000 you get back $1000 as a refund. If you paid $9000 you owe $1000. But the $10,000 is still $10,000.

    The decision of whether to file MFJ or MFS is does one or the other make the $10,000 go lower. But whether you owe $1000 or are owed back $1000 makes absolutely no difference.

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