Married Filing Joint vs. Separate

A leading tax software company proclaims that “[t]he IRS strongly encourages most couples to file joint tax returns by extending several tax breaks to those who file together.” The IRS does no such thing. The IRS is not in the business of extending tax breaks. That is Congress’ job.

If you are married and trying to figure out whether to file separately or jointly and how this will impact your tax liability now and in the future, you no doubt came across articles that make generic statements like the one above. These websites come up first in the search engines. They have pretty pictures and polished writing, but the content is just not there.

If you want more useful information, continue reading. We’ll get into not only how and when taxpayers can file jointly or separately, we’ll also get into the consequences for each option.

Non-Tax Considerations

Before getting into the tax rules, let’s pause to note that there are non-tax reasons why you may want to file jointly or separately. This can be part of your marital tax planning (or divorce tax planning), business succession planning, etc.

By way of example, we have had clients who are better off filing separately as doing so reduced the amount of their income-based student loan payments. We have also had clients who were able to get better loan rates by filing jointly.

Before you make a decision to file one way or the other, you should also pause to consider whether any non-tax benefits outweigh the tax benefits. With that said, this is a tax website. So let’s get to the tax rules.

Is it Better to File Single or Married?

The general rule is that it is better to file married. We’ll explain why this isn’t always the case later in this article.

Before moving on, we should note that you cannot file single if you are married. So if you are not planning on divorcing your spouse to try to save on taxes, the question as to the difference between filing single vs. married is not all that relevant.

The real comparison is between filing married filing jointly and married filing separately.

Joint Tax Return Filing Status

Section 6013 says that a husband and a wife can elect to file a joint tax return even if one of the spouses does not have any income or tax deductions.

When you file jointly your tax is computed on the aggregate income. You file the same tax form, but you include the income, deductions, credits, etc. for you and your spouse.

There are rules you have to meet to be eligible to file jointly. The first is that you have to be married on the last day of the year. Also, neither you nor your spouse can be a non-resident alien (i.e., a non-citizen and non-resident).

Congress has taken steps to make our tax laws more favorable for those who make this election. As a general rule, the average taxpayer will save a few thousand dollars by filing jointly. This is why most married couples file jointly.

Married Filing Separately

You can also file as married filing separately if you are married on the last day of the year. This is an alternative to filing jointly.

If you file separately and take itemized deductions (instead of the standard deduction), then both spouses have to itemize. The standard deduction is zero for the non-itemizing spouse. This can be problematic where both spouses have income, but only one spouse has itemized deductions.

There are times when it makes sense for married couples to file separately. From a pure tax dollars perspective, this may save money in some situations. Consider the example where you and your spouse are both employed and earn wages. Combined your wages exceed $150,000. If you also have a rental property that produces a $10,000 tax loss, you may find that you cannot take the tax loss in the current year. The passive activity loss rules prevent you from taking the deduction. If you were to file separately, your income would be under $150,000. The passive activity loss rules allow taxpayers with under $150,000 of income to deduct up to $25,000 of rental losses. This is just one example of when it might be advisable to file separately.

The same type of issue can arise if one spouse has significant medical bills that would be limited as the expense would not exceed 7.5 percent of your combined income. This 7.5 percent rule is just another limitation found in our tax laws. It says that medical expenses are not deductible unless they exceed this threshold amount.

The same type of issue comes up with student loan interest deductions. You cannot deduct student loan interest if you or your spouse can be claimed as a dependent on another taxpayer’s return. If either of you can be claimed on another tax return, you might be better off filing separately.

Should I File Married Jointly or Separately?

We are often asked whether you get more money back by filing married and when should married couples file taxes separately.

Luckily, if you are wondering whether it makes sense to file separately given your circumstances, you really don’t have to do a lot of thinking.

The easy way to make this determination is to review the tax schedule that your tax software or tax preparer provides to you. Most tax software (even the software tax preparers use) is able to produce a schedule showing the benefit from filing jointly or separately.

To make this schedule work (and accurate), you just have to check the checkbox next to each item of income and deduction to specify which spouse earned, received, incurred, etc. each item of income and expense (see the note below regarding community property laws, as they can make this exercise more difficult).

This schedule will typically have four columns. The first column lists the various items of income, deductions, tax credits, etc. The second and third columns show the amounts for each item for each spouse (column two for the husband and column three for the wife), and the fourth column will show the same numbers for the joint return. The bottom row will usually display the total tax for each column. This allows you to see what the bottom line tax difference is for filing separately and jointly.

And no, you do not file this tax schedule with your tax return. If your tax software or tax preparer gives you this type of schedule, you should not send it to the IRS with your tax return (it is not the end of the world if you do provide it to the IRS, but you generally shouldn’t do so as it is not a form that goes with your tax return).

Can I File Head Household if I am Married?

The answer to this question is short. Head of household filing status is not available if you are married on the last day of the tax year.

To qualify for head of household status, you have to be single and pay to keep up a home for a qualifying person. The qualifying person is usually your dependent child. There are rules that apply here, but we won’t go into those in this article given that married couples cannot qualify for this filing status.

What if I Live in a Community Property State?

State law says what you own, what your spouse owns, and how this ownership is shared. Federal tax law does not grant ownership of property, etc. It merely provides tax rules that apply to the state-created property rights.

This is true whether you live in a common-law state or a community property state. Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. The other states are common law states (Alaska has a hybrid system).

If you live in a common-law state, you can generally file as married filing separately and only be liable for income taxes on your income. Compare that to the community property state. If you live in a community property state, the community property laws allocate part of your spouse’s income to you. If you file married filing separately, you are required to report and pay income tax on one-half of the income you earned and this one-half income your spouse earned. This is true even if you do not share half of your income with your spouse or receive half of your spouse’s income. The fact that your spouse earned it triggers the tax for you.

Section 66 provides some limited relief here. It says that you can avoid splitting income like this if you lived separately from your spouse for the entire year.

Why Do I Owe Taxes When Filing Jointly?

Section 6013 says that the consequence of filing jointly is that the liability for the tax shall be joint and several.

Joint and several liability means that you and your spouse can be held liable for the full amount of the tax. This means that the IRS can attempt to collect the full amount of tax from one or both of you.

This can result in a tax liability from one spouse being allocated to the other spouse.

Is a Widow Responsible for Husband’s Tax Debt?

There is an exception for qualifying widows. If you are a widow, you generally are able to file a joint return with a deceased spouse for two years after the death. This can allow you to continue to get the benefits of filing jointly.

This can also trigger joint liability for the taxes. Absent a joint tax return, the widow is not liable for the deceased spouse’s taxes.

This general rule stops short of providing the complete answer. The answer continues to say that even though you are not liable for your deceased spouse’s taxes, you are probably liable to the extent you acquire your deceased spouse’s assets. This turns on whether a tax lien is filed.

For example, say you file separate returns for several years, your spouse owes $20,000 in back taxes to the IRS, and then your spouse dies. You inherit your spouse’s car which is worth $10,000. The IRS can use its transfer liability powers to collect $10,000 from you. I use the car as an example as it highlights how difficult it is for the IRS to even know about these transfers. Transfer liability is not automatic. The IRS has to take steps to impose transfer liability. If it does not know of the transfer, there will be no transfer liability.

What Happens if You Marry Someone Who Owes Back Taxes?

The general rule is that you are not liable for back taxes if you marry someone who owes back taxes.

While you may not be liable for the taxes, that does not mean that the IRS may not try to take your money or assets to pay the tax.

This often comes up with joint assets, such as a joint bank account that you put paychecks and other funds into. The IRS may levy on the account if your spouse is listed as an owner of the account. This can also play out with brokerage accounts, real estate, etc.

It should also be noted that your income is also factored into the amount the IRS will want to collect from your spouse. The thinking is that the household income is used to pay the household expenses, thus, the portion of the expenses you pay are not counted in determining how much your spouse can pay. Consider this example. Say you make $75,000 a year and your spouse makes $25,000. The IRS might presume that your spouse is only paying 25 percent of the household expenses. The result is that he or she has more disposable income to pay the IRS.

What is a Joint Tax Payment?

The term “joint tax payment” usually refers to estimated taxes paid by a married couple. This raises questions as to who gets to claim the tax payments if the couple is not married at the end of the tax year.

The short answer is that you and your ex-spouse can decide how to split the payments between your separate tax returns. If you cannot agree, then you are supposed to divide the payments between the two of you based on the ratio of each spouse’s separate tax to the aggregate tax imposed. This presupposes that you actually have this information. In many cases, ex-spouses will not cooperate and share information. This means that the spouses usually have to report their own payments and hope the IRS does not send a letter proposing an adjustment.

What is Injured Spouse Allocation?

Injured spouse allocation refers to a request made to the IRS to either not take or refund a share of a joint tax refund. You request this allocation when you file a joint tax return and are entitled to a tax refund, but the IRS applied the full refund to pay your spouse’s separately-owed back taxes. This allocation is not automatic. You have to send Form 8379 to the IRS to request that this type of allocation be made.

What is Innocent Spouse Relief?

Innocent spouse relief s an administrative remedy the IRS can grant for married couples who file jointly (and those who live in community property state and file separately, but have to report half of their spouse’s income).

This innocent spouse relief allows the IRS (or the courts, if you have a dispute with the IRS about this relief) to excuse you or your spouse from paying all or some of the joint tax liability. This relief is not automatic. You request this relief by submitting a form and information to the IRS.

There is a whole body of rules and court cases that say who is entitled to innocent spouse relief and when. You should read our page on innocent spouse if you want to know more about this topic.

Get Help With Your Marriage-Related Tax Problems

We are experienced tax attorneys in Houston, TX. We help clients with marriage-related tax planning and problems. This includes helping clients with innocent spouse claims.

Please call us at (713) 909-4906 or schedule an appointment with our divorce tax attorneys to discuss your situation.