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Each year when tax time comes around, married couples must decide whether they want to file a joint tax return or choose married filing separately. This decision can have a significant financial impact, so it’s important to understand the difference and the potential pros and cons of each option. 

Following, you’ll find a brief overview of each option and some situations when filing separately might make sense.

What is Married Filing Jointly?

Couples who elect the option of “married filing jointly” file a single tax return that includes all of the income and deductions for both parties. Both spouses must sign the tax return, and both are responsible for paying any taxes owed.

The U.S. government encourages couples to file jointly by offering financial incentives. Joint filers receive a large standard deduction and can often qualify for multiple tax credits. The income thresholds for certain deductions and taxes are also often larger, allowing couples to earn a higher income and still qualify for certain tax breaks.

What is Married Filing Separately?

When couples elect “married filing separately,” each individual files their own tax return, reporting only their income and taking only the deductions that apply to them.

There are some potential financial drawbacks to this. For example, choosing this election prevents you from taking a deduction for student loan interest, education tax credits, and the earned income credit. The modified adjusted gross income (MAGI) limit for making a Roth contribution is also only $10,000, which could prevent you from being able to take advantage of this retirement savings option.

While many people save money by filing jointly, there are some situations when filing separately could be advantageous.

When Should You File Separately?

While each situation is different, it could make sense to choose married filing separately if any of the following circumstances apply: 

• You want to keep your finances separate – whether there are trust issues, you’re getting divorced, or you just prefer to keep your finances to yourself, filing separately may be right for you.
• One spouse has high medical expenses – you can deduct medical expenses above 7.5% of your adjusted gross income (AGI). This can be difficult when combining a couple’s income, but if one spouse makes significantly less and has high medical expenses, filing separately may lower the total amount of taxes you owe.
• You have an income-based student loan repayment plan – these plans are based on your adjusted gross income, which is typically higher when filing jointly. In this case, filing separately could keep your required minimum loan payments down.
• One spouse has tax liabilities – if one spouse owed back taxes before getting married, both partners become liable once a joint return is filed. If one spouse is behind on student loan payments or owes back child support, your tax refund could also be seized to cover these payments. These are both potential reasons to file separate tax returns.

When weighing your options, it’s typically a good idea to run the numbers both ways and see which filing option creates a lower tax liability. This could be difficult for the average person to do, so it may make sense to consult with a tax expert before making your decision.

Not Sure Which to Choose? Consult with an Expert

While the bulk of married couples choose to file a joint tax return, it may make sense to compare your options. Gurian CPA Firm provides comprehensive tax planning and preparation services. Our experts can help you analyze your unique circumstances so you can confidently choose the best option each year. Contact us today to schedule a consultation.