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Thursday, March 23, 2023

How married filing separately works & when to do it

How married filing separately works & when to do it 

married couple thinking about taxes

Key takeaways

Married filing separately means that you and your spouse report separate tax returns. Learn more here if filing separately is right for you and your situation.

By
Brian Wainscoat, CPA

04.08.2022

Picking your first house, learning about each other, planning for your future – of the many joys of marriage, sitting down and figuring out how you’ll prepare taxes is not usually one of them. If you’re married, there are two options for your filing status with the IRS: married filing jointly and married filing separately.

What is married filing separately?

Married filing separately is one of five different tax-filing statuses that you can choose from. It means that you and your spouse each report income, deductions, credits and exemptions on separate tax returns instead of on one return jointly.

For example, a couple choosing to file separately would each file their own Form 1040 and any accompanying schedules, like Schedule 1, Schedule A or Schedule D. When filing separately, you and your spouse are only responsible for your own individual tax liability. You’re not responsible for any tax, penalties or interest that might result from each other’s returns.

How married filing separately works

When choosing the married filing separately, keep in mind that there are a few rules you must follow. For example, if one of you itemizes deductions on Schedule A instead of taking the standard deduction, both of you will have to itemize deductions. And you’ll have to decide who gets which deductions, which can get complicated if you want to deduct your mortgage interest, for example.

For tax year 2022, the standard deduction is $12,950 for married couples filing separately. Filing separately might also exclude you from eligibility for certain tax deductions and credits (see below).

Keep in mind that married filing separately and filing as a single unmarried person are two different things. In other words, you can’t choose the single filing status if you’re married. In some situations, the tax brackets are different for single filers and married couples filing separately.

How married filing separately vs. jointly affects tax rates

How you file will impact your income tax bracket. Following are the tax rates for married individuals filing jointly or separately.

2022 federal income tax rates (for taxes due in April 2023)1

Tax Rate

Married Filing Jointly

Married Filing Separately

10%

$0 to $20,550

$0 to $10,275

12%

$20,551 to $83,550

$10,276 to 41,775

22%

$83,551 to $178,150

$41,776 to $89,075

24%

$178,151 to $340,100

$89,076 to $170,050

32%

$340,101 to $431,900

$170,051 to $215,950

35%

$431,901 to $647,850

$215,951 to $323,925

37%

$647,851 or more

$323,926 or more

 The benefits of married filing separately

While the tax code encourages married couples to file their tax returns jointly, there are a few scenarios where married filing separately could be beneficial.

These include when both spouses have about the same amount of income and when combining income pushes a couple into a higher tax bracket. Other scenarios where married filing separately might make sense include the following:

  1. You and/or your spouse have deductions based on Adjusted Gross Income (AGI). High medical expenses are the most common example of a deduction that is impacted by AGI. You can deduct medical expenses that exceed 10% of your AGI.
  2. You and/or your spouse have income-based student loans. Student loan payments are based on each spouse’s income, rather than on joint income as with separately filed returns. In some cases, this may reduce your obligation to make higher student loan payments. However, there are also education tax credits you might lose (see below), so be sure to weigh your options.
  3. You live in a community property state. If you or your spouse live in what is known as a community property state, special rules apply for allocating income and assets. Even though you may file separate returns, each of you may be obligated to report half of combined income and deductions on each return.
  4. To protect yourself against liability issues. Married filing separately may be an appropriate option if there is a lack of trust between spouses. Both partners must consent to filing a joint tax return, so filing separately can help if one spouse suspects the other of tax evasion or misfiling tax documents.
  5. You are not willing to file together. Married filing separately can also accommodate couples who are in the process of divorce or separation. Even if divorce or separation isn’t an issue, filing separately can allow each spouse to maintain autonomy over their own tax situation and potentially their own finances.

In general, choosing the married filing separately status makes the most sense when couples without dependents have large, itemized deductions or are separating.

The drawbacks of married filing separately

The fact is, filing jointly makes sense for most married couples. In fact, around 95% of couples decide to file jointly because it tends to result in a lower tax bill and easier filing.

One of the biggest drawbacks to married filing separately is that you lose potential tax breaks, credits and deductions. These include the following:

The Child and Dependent Care Expenses Credit — This allows you to claim unreimbursed childcare expenses like babysitting, daycare and summer camp as a nonrefundable tax credit.

Education tax credits — These include the American Opportunity Tax Credit and the Lifetime Learning Credit, which help offset costs for post-secondary education.

Student loan interest — The interest paid on student loans may be tax-deductible if you’re married and file jointly.

Other tax credits that aren’t available to married couples filing separately include the Earned Income Tax Credit (EITC), the Adoption Tax Credit and the Credit for the Elderly or Disabled. Also, the Child Tax Credit and the Saver’s Credit will be limited to half the amount they would be if you filed jointly.

Which filing status should you choose?

One of the best ways to figure out whether filing separately or jointly is best for you is to prepare your tax return both ways and look at which method results in the lowest tax liability. If you use tax software to prepare your tax return, many of today’s products will perform this calculation for you and provide a recommendation.

Remember, these are just general guidelines regarding the pros and cons of various tax filing statuses. It’s important to understand the married filing separately rules, so you should consult a tax professional about your specific circumstances.

The bottom line

Determining your tax-filing status is just one part of your overall financial plan. You can take a couple of actions now to get yourself on the right track.

  1. Sign up for the Empower Financial Dashboard. Millions of people use these free and secure professional-grade online financial tools. You can use them to see all your accounts in one place, analyze your spending and plan for long-term financial goals.
  2. Consider talking to a financial professional for more detailed guidance on your retirement saving strategies.

1 IRS.gov, IRS provides tax inflation adjustments for tax year 2022, November 2021.

RO2572906-1122

Brian Wainscoat, CPA

Brian Wainscoat, CPA

Contributor

As a tax specialist at Empower, Brian brings a depth of tax knowledge to coordinate with clients’ tax planning strategies. Brian has an extensive background in tax preparation with high net worth individuals, as well as business owners. He specializes in tax efficiency for individual clients. Brian is a Certified Public Accountant licensed in Colorado. He received his B.A. in Business Administration with an emphasis in accounting from Washington State University. Outside of work, he enjoys spending time with his family and friends, bicycling, skiing, and volunteering and giving back to the community.

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