As we are in the peak of wedding season, it’s a good time to discuss the tax filing options for married taxpayers. While planning for a wedding, couples have a lot of details to worry about and decisions to make, but how to file their income tax returns is probably not high on the list! However, after returning from their honeymoon, newlyweds may want to consider their options and decide on their tax filing status.
A taxpayer’s filing status typically depends on whether they are considered married or unmarried on December 31, which determines their filing status for that entire year. Married couples can choose to file their federal income tax returns jointly or separately.
Married Filing Jointly (MFJ)
The couple files a single return that combines both of their incomes, deductions, credits and exemptions
In most cases, a joint return results in a lower federal income tax liability for the couple, and is often the best choice when one spouse has significant income. Additionally, taxpayers choosing MFJ status can qualify for numerous federal tax benefits which are disallowed for married taxpayers who file separate returns. These benefits include, but are not limited to:
- Earned Income Tax Credit
- Child & Dependent Care Credit
- American Opportunity Tax Credit
- Lifetime Learning Credit
- Deduction for Student-Loan Interest
- Credit for Qualified Adoption Expenses
- Credit for the Elderly and Disabled
In addition to the items listed above being disallowed for MFS taxpayers, other negative effects for married taxpayers who file separate returns include (but are not limited to):
- Savings bond interest is included in income even if it is used to pay higher education expenses
- The limit on deductible individual retirement account (IRA) contributions for participants covered by pension plans is reduced
- Tax tables are adjusted for inflation by rounding to the nearest $25, rather than to the nearest $50
- The exclusion for dependent care assistance payments is halved
- The limitation on the general business credit may be halved
Married Filing Separately (MFS)
Both individuals file their returns independently, using only their own income and deductions
If incomes are unequal, it may be more advantageous for each spouse to file separately because certain itemized deductions are calculated as a percentage of a taxpayer’s adjusted gross income (AGI). When filing jointly, a couple’s incomes combine, making this threshold more difficult to meet; thus, lowering the amounts that qualify to be deducted. It is important to note that the IRS does not allow one spouse to itemize deductions and the other to take the standard deduction. When married filing separately, both spouses must take the standard deduction or both must use itemized deductions.
The examples below help illustrate the benefits of filing MFS, especially if one spouse has significant medical expenses or miscellaneous deductions to claim.
Medical Expenses – can be deducted to the extent they exceed 7.5% of AGI.
Example: Assume $8,000 in medical bills in 2020
- If you file jointly and your combined AGI is $100,000, then only the portion of your medical expenses over $7,500 is deductible. In this scenario, you can only deduct $500 for your medical bills.
- If you file separately and have an AGI of $48,000, then medical bills exceeding $3,600 can be included as an itemized deduction. As a result, you can claim a $4,400 tax deduction for your medical bills.
Personal Casualty Losses (losses from federally declared disasters from 2018-2025) – are deductible only to the extent that the excess of the losses over personal casualty gains in the same tax year is more than 10% of the taxpayer’s AGI.
- If if one spouse has a large casualty gain, but the other has a large casualty loss, it could be beneficial to file separately.
Another reason to file MFS is if one spouse suspects the other of hiding income or other tax evasion activities. If a couple files jointly, each taxpayer is liable for the spouse’s actions.
Final Thoughts
The only certain way to determine which filing method yields the lowest overall tax liability is to compute the federal tax liability under both filing options. Don’t forget to factor state taxes into your calculations. Feel free to contact Grossman Yanak & Ford LLP for assistance. Wishing you a lifetime of love and happiness – Happy Wedding Season!
Additional Resources
Tax Checklist for Newly Married Couples (irs.gov)
