LifeBack Tax

Tax Benefits Of Married Filing Jointly vs. Married Filing Separately

Are you married or thinking of getting married soon? There are many factors to consider when making this life-changing decision, and taxes are one of those factors. Married couples must make the difficult decision of whether to file their taxes jointly or file their taxes separately. Although most couples will opt to file joint tax returns, there are various tax benefits and consequences to each option.

1040 Form with Married Filing Jointly filing status

The Internal Revenue Service (IRS) acknowledges five different filing statuses on Form 1040. The statuses are as follows:

  • Single, for unmarried taxpayers who don’t qualify for any other filing status.
  • Married Filing Jointly (MFJ), for most married couples.
  • Married Filing Separately (MFS), for married high-income earners, taxpayers who are suspicious of their spouse’s income, or taxpayers with spouses who have tax liability issues.
  • Head of Household, for unmarried taxpayers who provide at least half of the cost of housing and support to others mostly dependents.
  • Qualifying Widow or Widower, for taxpayers who have recently lost a spouse and are supporting their child independently.

Each taxpayer’s circumstances are unique, and therefore filing a joint tax return may save you money. On the other hand, certain individuals may find that filing separate tax returns may be more beneficial. Whether you decide to file jointly, separately, or otherwise, it is crucial to analyze your financial situation and your spouse’s to make the most informed decision.

Determining Eligibility

Before you can decide whether to file a joint or separate tax return, you must determine your eligibility. In order to utilize the Married Filing Jointly (MFJ) status, taxpayers must meet the following requirements:

  • The taxpayer must be married as of December 31 of the tax year they are filing for, even if they weren’t living with their spouse at that time.
  • The taxpayer’s spouse passed away during that tax year and the taxpayer did not remarry that same year.
  • The taxpayer was married at the end of the tax year, but their spouse passed away the following year, prior to filing a return for the last tax year.

Although most married couples will be able to file their taxes jointly, there are some exceptions to this rule. Listed below are a few examples of when married taxpayers may not utilize the Married Filing Jointly (MFJ) status:

Although most married couples will be able to file their taxes jointly, there are some exceptions to this rule. Listed below are a few examples of when married taxpayers may not utilize the Married Filing Jointly (MFJ) status:

  • The couple was married for some time during the tax year but officially divorced prior to the tax year’s last day.
  • A member of the couple is a nonresident alien at any time during the tax year.

Tax Benefits of Married Filing Jointly (MFJ)

Happy couple throwing documents in the air

Married Filing Jointly (MFJ) status is the most common tax filing status for married couples. This filing status allows the married couple to file a single tax return, including the couple’s combined income, credit, and deductions. Married couples who file jointly are more likely to receive a bigger tax refund and a lower tax liability. Taxpayers may choose to utilize this filing status even if one of the spouses had no income or deductions for the tax year.

Married Filing Jointly May Grant You A Lower Tax Rate

The tax brackets for 2020 indicate that married couples who file a joint tax return are only taxed 10% on their first $19,750 of taxable income. Couples who file separately will only receive the 10% rate for up to $9,875 of their first taxable income.

MFJ May Grant You More Credits And Deductions

Standard deductions can be as high as $24,800 for married taxpayers filing jointly, which is the highest deduction available. The Internal Revenue Service (IRS) grants joint filers one of the most substantial standard tax deductions every year.  Tax credits available to joint filers include the Earned Income Tax Credit, the Child and Dependent Care Tax Credit, exclusion or adoption expense credits, and more. Married couples filing jointly generally receive larger income thresholds for specific taxes and deductions.

Tax Disadvantages Of Married Filing Jointly

Divorced couple fighting at meeting with lawyer

Although the Married Filing Jointly (MFJ) status may seem like the obvious choice for married couples, this option does have its disadvantages. Some couples choose to file jointly because they believe this option will be financially beneficial to them. However, this conception is not always true.

MFJ Can Make You Liable For Your Spouse’s Tax Bill

For example, taxpayers who file their taxes on a joint return accept full responsibility for the return’s accuracy and completeness. The IRS refers to this as joint and several tax liability. This liability can prove to be a disadvantage as the tax liability will still apply to both parties, even if they have divorced (link to https://lifebacktax.com/blog/protect-your-finances-with-our-guide-to-mirrored-accounts/).

Married Filing Jointly Can Disqualify You From Medical Deductions

Additionally, if one spouse has incurred an exorbitant amount of medical bills, then filing jointly may lower the possibility of claiming the medical bills as a deduction. The IRS limits the number of miscellaneous deductions taxpayers may claim annually, and this includes medical deductions.

The Internal Revenue Service (IRS) does, however, offer tax relief for taxpayers facing a tax liability that they were not responsible for. This program is the Innocent Spouse program.

Tax Benefits of Married Filing Separately (MFS)

Although most married couples tend to file their tax returns jointly, doing so is not mandatory. Some couples will choose to file separate tax returns in order to save money, or simply to avoid taking on their spouse’s tax liability. Whether the reason is petty or substantial, taxpayers may choose to file their tax returns separately. Listed below are examples of situations in which filing separate tax returns can be advantageous:

  • One spouse is unwilling or unable to file a joint tax return.
  • The married couple has the same total on the separate returns as their joint returns. In this situation, filing separately can seem more appealing to taxpayers as it can help prevent unnecessary tax liabilities. Alternatively, one spouse may receive a larger tax refund if they file separately.
  • One spouse is omitting income, claiming excess deductions, or generally committing tax fraud. In this situation, the innocent spouse should not be held responsible for the guilty party’s tax liability.
  • The (formerly) married couple are in the process of divorce, but are not yet separated. In this situation, the former couple wants to keep their finances separate in order to avoid issues.

Tax Disadvantages of Married Filing Separately

Whether married couples choose to file their tax returns jointly or separately, there are benefits and risks to both options. For example, Married Filing Separately (MFS) status may limit taxpayer’s access to certain tax benefits.

Married Filing Separately Can Minimize Your Credits And Deductions

Standard deductions and tax credits may be significantly minimized or eliminated. Itemized deductions will be minimized through income phase-outs or, even worse, entirely terminated. Similarly, tax credits such as the Earned Income Tax Credit (EITC) or educational credits are not available to married filing separately taxpayers.

Alternative Minimum Tax (AMT)

Married taxpayers who file separate tax returns are at higher risk for paying the Alternative Minimum Tax (AMT). The AMT additionally reduces or eliminates tax deductions.

We’ll Work On Your Taxes While You Work On Your Relationship!

Newlywed couple holding hands
Photo by Emma Bauso from Pexels

Married life comes with many perks, but it can also bring forth a whole new set of issues. When it comes to finances, it is in your best interest to set up the foundation properly. While some couples can easily make the choice to file jointly, the decision may take some more time for others.

Filing jointly can lead to future tax issues that you are not personally liable for! At Lifeback Tax, we have worked with plenty of individuals and married couples facing tax issues. If you are unsure of how to handle your tax situation, we can help. Our team has studied the rigorous tax law and we understand how difficult it can be to manage your finances. If you are struggling with spousal tax issues, spousal tax relief may be available to you! The Internal Revenue Service offers many tax relief programs. We can help you determine which program is the most beneficial for you.