Nobody likes filing taxes every spring. It takes a lot of time to receive all of your paperwork, and even more time to calculate and review to figure out whether you’re due money back. And let’s face it- it’s not exactly exciting stuff.
But when you get married, this process can get even more complicated. In addition to having double the amount of information to review, you need to decide the best way to file your taxes with your spouse.
Married couples have two options when it comes to filing their taxes- to file jointly with their spouse, or to file separately. As the name implies, filing jointly with your spouse means that income and deductions for both you and your spouse are reported on one tax return. When you file separately, each of you files a separate tax return with just your personal information on your own return.
But which option is the right one to choose?
Most Couples Choose to File Jointly
As with most tax-related questions, the answer to this question will vary depending on your personal situation. But, the better option for most couples is to file jointly. There are several reasons for this:
- Married couples who file separately hit higher tax rates at lower income levels. So, your effective tax rate between you and your spouse is typically higher for couples who file separately rather than jointly
- The standard deduction is lower for couples who file separately, and many itemized deductions are reduced or completely eliminated if you file separately rather than jointly.
- There are more tax breaks and credits available for joint filers, such as the Earned Income Tax Credit
So, this should be a fairly easy decision for most couples. However, there are a few key situations where it makes sense to file separately from your spouse. I highly recommend either calculating your taxes due both filing jointly or separately, or seek the assistance of a CPA, if you have doubts as to which would be best for you.
When Would It Make Sense to File Separately?
This is not an exhaustive list, but there are a few key scenarios where it may make sense to file separately from your spouse
You are on an student loan income-driven repayment plan. If your student loans are on an income-driven repayment plan, the amount you pay per month is tied to your annual income. Whether or not your annual income is just your personal income, or includes your spouses as well, depends on whether you file jointly or separately.
So, if you have a significant loan balance and are on one of these payment plans, if you file separately, you can base your payments on your income alone. But, as soon as you file your taxes jointly with your spouse, your spouses income will be included the calculation used to determine your loan payments.
You still may be better off filing jointly and paying the extra amount per month toward your student loans, but you should definitely keep these consequences in mind while making your decision.
I talk about this in my free eBook, “13 Steps to Take Before Making Your Next Student Loan Payment”. Subscribe to my newsletter, and I’ll send you a copy for free!
Either You or Your Spouse Has Significant Medical Expenses
The current tax code allows you to deduct any medical expenses that are over 10% of the income reported on your tax returns. This income number includes your spouse’s if you file jointly, but doesn’t if you file separately. So, if you had high medical expenses this year, you may end up paying less taxes by filing separately, depending on the numbers on the rest of your return.
For example, say that your annual salary is $75,000, and your spouse’s annual salary is $125,000. And, let’s say that you had a medical issue last year that cost you $10,000 total.
If you file jointly, your total income reported on your tax return would be $200,000. Since your total medical expenses ($10,000) is less than 10% of your income ($200,000), you wouldn’t be able to deduct any of these expenses.
But, if you file separately, your income on your tax return is only $75,000. Since you spend over 10% of this on medical expenses, you would qualify for this deduction.
You and Your Spouse Have (Very) Different Salaries
If you earn significantly more than your spouse (or vice versa) it may work in your favor to calculate each of your tax burdens separately rather than combining your incomes. If you also have a lot of investment income, such as capital gains or dividends, this scenario applies even more.
Again, in this case, I’d recommend you calculate your tax burdens both ways- jointly and separately- and compare the total taxes due in order to decide. But if, for example, you make $250,000 a year and your spouse makes $30,000, I wouldn’t recommend automatically filing jointly. Take the time to calculate your total tax bill by filing separately as well, and choose which one works out best for you.
Your Spouse Has Tax Debt
If your spouse hasn’t paid their taxes in the past, the second that you file jointly, this becomes your debt, too. If you file separately, you won’t be held legally responsible for this debt. This is still not a good situation for your family, of course, but filing separately can give you some legal protection in the event of an audit.
Generally speaking, if you have concerns about your spouse’s financial situation, maintaining some degree of legal separation with your money might not be a bad idea while helping them to work through it. This certainly would include filing taxes as well, even if it means you pay a bit more.
Particularly if you think that any of the above scenarios apply to you, I don’t recommend doing this on your own. Either use a self-guided program like TurboTax, or seek the help of a CPA, to review your specific circumstances and analyze your potential tax burden both if you file jointly or separately.
It’s no fun, and it adds a layer of work, but there’s too much money on the table to not do your due diligence.
If you have further questions or want to talk about any of the above ideas, don’t be afraid to reach out. I don’t prepare tax returns, but I can help you find someone that I trust to review your situation and get you the answers you need.