You are currently viewing Here’s when married filing separately makes sense, according to tax experts

Here’s when married filing separately makes sense, according to tax experts

PUBLISHED THU, FEB 24 20222:23 PM EST

Kate Dore, CFP®@KATEDORE

 

KEY POINTS

  • Married couples can choose to file their income taxes jointly or separately every season.
  • While the tax code generally rewards joint filers, there are some scenarios where filing apart pays off.
  • However, separate filers may lose other tax breaks and need to consider their complete return, experts say.

 

Married couples have the choice to file taxes jointly or separately every season. While filing together generally pays off, splitting returns may be better in some scenarios, financial experts say.

Married filing separately involves two individual returns, each reporting their own income, deductions and credits. And the tax code typically penalizes those filing apart.

“The IRS seems to have the viewpoint that if someone is filing separately, they’re doing something shady,” said certified financial planner John Loyd, owner at The Wealth Planner in Fort Worth, Texas, explaining how it may invite a bit more scrutiny.

Still, the tax benefits may outweigh the downsides for some couples. Here’s what to know about filing separately.

Marginal tax brackets for tax year 2021, married filing jointly

Taxable income Taxes owed
$0 to $19,900 10% of taxable income
$19,901 to $81,050 $1,990 plus 12% of amount over $19,900
$81,051 to $172,750 $9,328 plus 22% of amount over $81,050
$172,751 to $329,850 $29,502 plus 24% of amount over $172,750
$329,851 to $418,850 $67,206 plus 32% of amount over $329,850
$418,851 to $628,300 $95,686 plus 35% of amount over $418,850
$628,301 or more $168,993.50 plus 37% of amount over $628,300

Source: IRS

 

Marginal tax brackets for tax year 2021, single individuals

Taxable income Taxes owed
$0 to $9,950 10% of taxable income
$9,951 to $40,525 $995 plus 12% of amount over $9,950
$40,526 to $86,375 $4,664 plus 22% of amount over $40,525
$86,376 to $164,925 $14,751 plus 24% of amount over $86,375
$164,926 to $209,425 $33,603 plus 32% of amount over $164,925
$209,426 to $523,600 $47,843 plus 35% of amount over $209,425
$523,601 or more $157,804.25 plus 37% of amount over $523,600

Source: IRS

Student loan repayment

If you’re part of an income-based student loan repayment plan, it may make sense to file taxes separately since earnings typically determine what’s due every month.

Filing jointly may trigger higher payments, Loyd said, but you need to weigh the other trade-offs before filing apart to lower your bills.

Medical expense deductions

You may also consider separate filings to reduce adjusted gross income if you have high medical bills, said Marianela Collado, a CFP and CPA at Tobias Financial Advisors in Plantation, Florida.

If you itemize deductions, you may claim a tax break for unreimbursed medical expenses that exceed 7.5% of your adjusted gross income, she said.

For example, with an adjusted gross income of $100,000, you can write off eligible costs over $7,500. The lower your income, the easier it becomes to cross that threshold.

However, spouses filing separately must either itemize or take the standard deduction, Collado explained. They can’t use different strategies.

Financial infidelity  

Another common reason to file taxes separately are cases of financial infidelity.

For example, you may sever returns if you’ve split from your spouse and can’t count on them to file taxes accurately or on time, said Monica Dwyer, a CFP, vice president and wealth advisor at Harvest Financial Advisors in West Chester, Ohio.

“You’re putting yourself on the line for that information,” she said, explaining how signing a joint return may create liability for mistakes or tax fraud.

And there’s no statute of limitations for the IRS to pursue cases of fraud, adding further risk for divorcing spouses.

Trade-offs of filing separately

“If couples are going to file separately, they have to look at what they’re giving up,” said John Gehri, a CFP and vice president at Harvest Financial Advisors in West Chester, Ohio.

For example, most separate filers can’t make Roth individual retirement account contributions since the IRS slashes the modified adjusted gross income limit to $10,000.

“If couples are going to file separately, they have to look at what they’re giving up.”

John Gehri

VICE PRESIDENT AT HARVEST FINANCIAL ADVISORS

And the agency blocks or limits other write-offs for separate filers, such as the student loan interest deductioneducation tax credits and more, Gehri said.

Whether you’re working with a tax professional or filing yourself, try running the numbers both ways before picking a status, he suggested.

“As a general rule, I really try to avoid filing separately,” Loyd from The Wealth Planner added. “You don’t want the spotlight shining on your tax return.”

 

Investing involves risk and investors may incur a profit or a loss. Past performance may not be indicative of future results. Withdrawals from tax-deferred accounts may be subject to income taxes, and prior to age 59 ½ a 10% federal penalty tax may apply. Diversification and asset allocation do not ensure a profit or protect against a loss. Holding investments for the long term does not ensure a profitable outcome. The foregoing is not a recommendation to buy or sell any individual security or any combination of securities.