Is it better for married couples to file taxes jointly or separately?
Editorial staff, J.P. Morgan Wealth Management
- Filing joint or separate tax returns is an age-old question many couples face come Tax Day.
- The IRS offers a number of tax benefits for married couples who file jointly – on everything from earned income to child care expenses.
To file jointly or separately is a question many couples face come Tax Day. After all, it could mean the difference between receiving a refund and owing money to Uncle Sam.
The IRS offers several tax breaks for married couples who file joint tax returns and thus may seem to encourage that option. As a result, most couples, particularly ones who have children or a spouse who doesn’t work, will benefit from filing jointly – but not all of them. There are some instances where separate returns make more sense.
Before you and your spouse decide, it’s important to consider the pros and cons of both tax treatments. Also, don’t forget to consult with your tax specialist to see what’s right for you.
Tax options for married couples
You generally have several filing status options to choose from in the United States tax system, depending on your marital status and particular circumstances. These include:
- Single
- Married Filing Jointly
- Married Filing Separately
- Head of Household
- Qualifying Widow(er) with Dependent Child
Each filing status has different implications for your taxes. If you’re married, you and your spouse typically have two options: Married Filing Jointly or Married Filing Separately. Both options have their own potential advantages and considerations to keep in mind, and understanding the nuances between them may help you make a more informed decision. This choice carries the potential to impact your overall tax liability and eligibility for various deductions and credits.
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Filing taxes jointly vs. filing taxes separately
Married filing jointly | Married filing separately |
|---|---|
Mechanics | |
Joint filing allows couples to combine their income and file a single tax return. | Filing separately means each spouse files their own tax return. |
Standard deductions | |
Filing jointly typically offers one of the larger annual deductions, reducing the couple’s combined taxable income. | Each spouse typically receives a single filer’s standard deduction, which is generally lower than the joint deduction. Both spouses must elect the standard deduction or both must itemize; you can’t pick and choose. |
Tax breaks and credits | |
Filing jointly may provide access to various tax credits like the Earned Income Tax Credit, education tax credits, Child and Dependent Care Tax Credits and adoption expense reimbursements. | Couples may lose eligibility for certain tax credits and deductions available to joint filers. |
Liabilities | |
Both spouses are jointly responsible for the tax bill and any potential audits or liabilities. | Each spouse is responsible only for their own tax bill, limiting exposure to the other’s financial or tax issues. |
Married filing jointly, explained
When it comes to tax breaks on your federal income taxes, the IRS typically gives one of the larger annual standard deductions to those who choose the Married Filing Jointly status, lowering their combined taxable income. The standard deduction for joint filers generally exceeds that of single filers and those who choose Married Filing Separately. This higher deduction can significantly reduce you and your spouse’s combined taxable income.
Furthermore, the tax rate brackets for married filers tend to be more favorable than for single filers. By combining incomes in a joint filing, married couples often benefit from a lower effective tax rate, especially if one spouse earns significantly more than the other.
In addition, the IRS typically offers other tax benefits to joint filers, including:
- Earned income tax credit: This is a refundable tax credit for couples and individuals in low- to moderate-income tax brackets with children. The amount of the tax credit is based on the individual’s income and the number of children in the household.
- American Opportunity and Lifetime Learning Education Tax Credit: This tax credit is for people attending college or for a spouse who is incurring tuition costs associated with college or graduate school.
- Child and Dependent Care Tax Credit: Aimed at working couples, this tax credit helps cover some of the cost of paying someone to care for your child or disabled spouse.
- Reimbursement or refund for adoption expenses: This tax credit covers some of the costs associated with legally adopting a child.
Married filing separately, explained
Married couples may think it’s easier to keep finances separate, including taxes. However, doing so could potentially result in you and your spouse paying more taxes than necessary. Couples who file separate tax returns don’t get to take advantage of the tax breaks mentioned above, but there are certain situations where filing separately may provide potential advantages.
For instance, for couples with high adjusted gross incomes (AGIs) and a lot of out-of-pocket medical expenses that they want to claim, filing separately may enable them to write off more. Under IRS rules, to deduct out-of-pocket medical expenses, the cost must be more than a certain percentage of your AGI. A couple making a lot of money may be less likely to get that write-off when filing jointly.
Or for married couples applying for student loans, filing separately may increase the amount of aid they receive. Federal student loans are based on the income shown on your tax return. If your income is lower, filing separately may be more beneficial to reduce your student loan payments. On the other hand, neither spouse can claim student loan interest deductions when filing separately.
And some couples opt to file separately to limit the tax burden from their spouse’s activities or to avoid liability from their spouse’s tax affairs. Filing separately may protect a spouse from any potential legal or tax events that may arise.
Note that spouses domiciled in one of the nine community property states and opting to file separately must each report half of each income item that is community property.
Is it better to file jointly or separately?
The choice to file jointly or separately largely revolves around your personal financial circumstances. Joint filing is often beneficial for couples with disparate incomes, potentially lowering overall tax lability with more favorable tax brackets. Conversely, filing separately might be advantageous in situations where one spouse has significant deductible expenses or concerns about joint liability, as it allows for more individualized tax treatment.
For example, if you earn substantially more than your partner, filing jointly might place you in a more favorable tax bracket, leading to potential savings. If, say, your spouse has higher medical expenses, filing separately might allow for a greater portion of these expenses to be deducted. Essentially, deciding whether it’s better to file jointly or separately typically starts by evaluating your financial situation. Keep in mind that tax laws are complicated and subject to change, and the considerations mentioned above are only a partial list – consulting with a tax professional may provide more tailored guidance and help you make more informed financial decisions.
If you’re still wondering “Should I file jointly or separately?”, here are some questions you and your spouse may want to consider:
- Is there a wide income gap between you and your spouse?
- Do either of you have significant individual deductions, such as medical expenses?
- Do you have credits that cannot be claimed on separate returns?
- Are you domiciled in a community property state?
- Are there any concerns regarding joint financial liabilities or past debts?
- How might student loan payments influence your decision?
The bottom line
When it comes to deciding whether to file jointly or separately, it boils down to which way saves you more money or gets you a bigger refund. Death and taxes are life’s two certainties, but that doesn’t mean you don't have options (at least with taxes).
Frequently asked questions about filing taxes jointly vs. separately
Adjusted gross income (AGI) is your gross income minus any applicable deductions and adjustments. These deductions could include things like retirement account contributions, student loan interest or alimony payments. Your AGI should be lower than your gross income.
A common misconception is that married couples must file as “married filing jointly.” It’s also possible, however, to file as “married filing separately.” This filing status may be used for various reasons, including when married but living separately. Consider consulting with a tax professional to find out more.
Although there is no direct tax credit received for getting married, it’s possible that your filing status after marriage may effectively lead to a lower tax burden, for various reasons. Speaking with a tax professional may help you learn more about your tax status as a married couple.
If you owe taxes from a previous tax year (back taxes), the IRS offers several ways to pay including electronic payment, credit and debit cards, cash or check. It may be possible to pay in installments over time, rather than in one lump sum. Consult the IRS website or a tax professional for more details.
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Editorial staff, J.P. Morgan Wealth Management
