Tax Considerations for Married Couples

The IRS allows married couples to file either joint or separate returns. Each filing status has advantages and disadvantages. Since the benefits of each are based on several factors, the preferred status may change from year to year. Couples should consult a financial professional to determine which status is most beneficial for them. That being said, here are a few things for married couples to consider when filing taxes.

Filing jointly applies only to legally married couples. When a couple files jointly, their combined income is used to calculate deductions and tax rates. Married couples have a much higher threshold in the progressive tax brackets than single filers.

In 2020, joint filers paid 10 percent on their first $20,000 of earned income, which was nearly double the threshold of single filers. Taxpayers filing jointly could also combine their standard deductions. Couples filing together in 2021 could earn $25,100 tax-free.

The IRS limits certain deductions to married couples filing jointly. For example, only joint filers can qualify for the Earned Income Credit or deductions for education-related expenses. Married taxpayers who file jointly can also contribute to Roth IRAs as long as their income is under the stated threshold. In 2021, this was more than $200,000.

For most married couples, the above-mentioned benefits make filing jointly the better option. Filing jointly is especially beneficial when one person has no income or a much smaller income than their spouse. Since deductions and credits are shared equally, the higher-earning individual pays less tax overall than if they filed separately.

There are, however, several situations in which filing separately can be beneficial. If, for instance, both spouses are high- earners, combining their incomes may increase their tax liabilities, even after taking into account the qualifying deductions.

Couples may also choose to file separately to qualify for income-based deductions or lower student loan rates. For example, the IRS allows individuals who itemize their expenses to deduct a percentage of medical expenses. However, this deduction applies only if the medical costs are greater than 7.5 percent of the filer’s adjusted gross income. Filing separately reduces the adjusted gross income, which can help the filer qualify for the medical deduction. Additionally, filing separately allows the other spouse to take the standard deduction, even if their partner chooses to itemize.

Filing separately can also benefit individuals on income-based student loan repayment plans. Federal loan providers use only the adjusted gross income from the spouse’s tax return to calculate the minimum payment.

Americans abroad married to non-US citizens who have no connection to the United States can file separately. Many expatriates choose this option so their spouses do not become liable for taxes in both their country of residence and the United States. Americans married to nonresidents are the only married individuals who can file as head of household.

Finally, many couples choose to file separately to protect their financial interests. If one spouse owes child support or taxes, filing separately can prevent the other spouse’s tax refund or other assets from being seized to pay the debts.

Identifying the most suitable filing status can be as simple as running both options through a tax return simulator. Couples with more complicated financial situations should consult a tax preparation professional.