Taxes from A to Z: M is for Married Filing Separate

I would guess a full 50% of the questions that come my way about filing status focus on whether it makes sense to file as married filing separate. My answers tend to be split between “no because you’re single” and “it depends.”

My advice is not to make this any more difficult than it needs to be. Your marital status is determined as of the last day of the tax year (that’s December 31 for most taxpayers) according to state law. If you’re married on that day, you’re married. If you’re not, you’re not. There’s not much room for a gray area with two exceptions: same sex marriages are not recognized under federal tax law and you may be considered single *if* your state allows for legal separation.

If you are married, you generally have two choices: married filing jointly and married filing separate. In most cases, if you are married and choose to file as married filing separate, you will usually pay more tax. Usually. Some exceptions apply. But in the great majority of cases, you will pay more tax.

If you file as married filing separate, you still have to coordinate a bit with your spouse. While you include only your own income, deductions, exemptions and tax credits, you still have to include your spouse’s information, including Social Security Number or Taxpayer ID. You also have to elect the same deduction option as your spouse: you must both opt to itemize or you must both opt to take the standard deduction. You may not each independently elect itemized or standard deductions.

If you file as married filing separate, you lose the option of claiming some tax preference items. For example, you cannot take the student loan interest deduction, the tuition and fees deduction, the education credits, or the earned income credit.

So why do it? There are a few scenarios where electing married filing separate status makes sense:

  • Privacy. It’s rare that your spouse’s tax return will be made public but if it is, filing separately ensures that your own returns stay private. Who falls into this category? Generally, the spouses of politicians. Think Teresa Heinz-Kerry or Cindy McCain, both wealthy women in their own right who might not want the world to know their business.
  • Trust (or lack thereof). These days, many married couples maintain separate accounts (I do) and have separate assets. Sometimes it’s for convenience purposes. Sometimes it’s to keep some semblance of independence. And sometimes it’s for professional reasons. That doesn’t always translate into separate tax returns. However, if you maintain separate financial lives to the point where you don’t understand/care/want to know what’s going on with your spouse’s finances, you may also not wish to file a joint tax return. You can’t simply claim ignorance if your spouse makes a significant error: the IRS expects you to review and understand your tax return before you sign it. If you don’t have a level of comfort signing a joint return, don’t. That’s a great reason to file separately.
  • Protection. There’s a great line in the movie Steel Magnolias when Truvy says to Clairee, “If you can achieve puberty, you can achieve a past.” It’s true. Many taxpayers these days marry someone with a past… past tax debts, defaulted student loans, you name it. It happens. Filing separately may preserve a spouse’s right to claim a refund (yes, you can file some extra papers to achieve the same goal but that’s an awful lot of work).
  • Medical or Other Expenses. Occasionally one spouse has significant medical or other expenses but little income. Since medical expenses must meet that 7.5% floor before you can deduct them, joint filers may have a hard time meeting that threshold. However, a taxpayer filing separately with a relatively low income can hit the floor much more quickly. Ditto for miscellaneous expenses subject to the 2% floor. Keep in mind, though, that your spouse has to itemize if you do, so this only works if there are enough combined deductions between the both of you.
  • Money. Sometimes, the numbers just work out better. And why pay more than you have to?

So there you go. There is no rule that says, “Thou shalt elect married filing jointly.” Sometimes it makes sense to elect married filing separate. Sometimes. Run the numbers – or discuss with your tax pro – to see if it makes sense for you.

* Caveat/Disclaimer/Admitting that I don’t understand our friends out west: keep in mind that there are some particularly kooky rules (okay, that’s my description, not the IRS’) if you live in a community property state… Be sure to consult with your tax professional for details.

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Comments

  1. Twh

    You’ve been reading my mind.

    My wife is a graphic artist with a day job and substantial freelance $$$ on the side. It has been her perogative in the past to do things the wrong way–i.e., not report–especially amounts in trade/barter, even though I’ve warned her it’s a bad idea (I’m an Accounting BS grad hoping to be CPA some soon).

    I was just wondering about filing separately and whether I would be liable for her not-so-grey areas. I think this post sums it up. Thanks!

  2. Mary O'Keeffe

    I agree with most of what you’ve written above except: “Filing separately may preserve a spouse’s right to claim a refund (yes, you can file some extra papers to achieve the same goal but that’s an awful lot of work).”

    Actually, I can tell you that filing the “extra papers” to achieve the same goal is a whole lot LESS work than filing two separate tax returns for a married couple. We have done this numerous times at our VITA site. It is just one extra form and it’s really an easy one (compared to doing a second return.)

    The extra form is Form 8379 “Injured Spouse” allocation.
    https://docs.google.com/viewer?url=http%3A%2F%2Fwww.irs.gov%2Fpub%2Firs-pdf%2Ff8379.pdf

    For low-income taxpayers, married filing separately (MFS) is “the pits,” because so many tax benefits aimed at low-income taxpayers (especially earned income credit, but others as well) are disallowed to taxpayers who file MFS.

    By filing a joint return and a Form 8379, we have seen the “injured spouse” (that is, the one who does not have an obligation for back taxes, unpaid child support, or unpaid student loans) come out with a MUCH larger refund than she would have gotten with an MFS return.

  3. Author
    Kelly

    Mary, I think it depends on the couple. It’s not unusual for one spouse to be kept in the dark about their spouse’s finances (not that I am saying this is ok)… It makes completing the allocation section awfully difficult.

  4. Mary O'Keeffe

    I totally agree that it’s common for a spouse to keep the other spouse in the dark about finances, but in that case, the problem is far deeper than the allocation form, which is really pretty simple.

    The problem in that case is that the spouse kept in the dark can’t be sure that the main part of the joint return is accurate. That is a very different issue. In that case, the problem is that the in-the-dark spouse can’t confidently sign a joint return at all, with or without an allocation form.

    All the allocation form does is to ensure that the spouse who does not have PAST problems from prior years has her rightful part of the joint refund protected from the spouse who racked up those problems (back taxes, child support, or student loan debt.)

    The allocation problem definitely does nothing at all to solve the problem of a spouse who is lying about information on the CURRENT year return. I agree that the only answer in that case is for the honest spouse to insist on filing a separate return from her spouse.

  5. Mary O'Keeffe

    One other note: you wrote above, ” If you’re married on that day, you’re married. If you’re not, you’re not. There’s not much room for a gray area with two exceptions: same sex marriages are not recognized under federal tax law and you may be considered single *if* your state allows for legal separation.”

    Actually, there is a very important third exception. You can be “considered unmarried” by the IRS, even if you are legally married but lived apart from your spouse for at last the last half of the tax year AND you otherwise satisfy the conditions for Head of Household filing status.

    http://www.irs.gov/publications/p17/ch02.html#en_US_2010_publink1000170797

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  8. Joanne Subranni Ramsey

    I hate to lose out on student loan tax credit, but for those of us who have elected to repay loans via the income based repayment plan, it is a good trade off. My income alone determines my loan payment every month, so even though I can’t deduct the interest I’m still ahead in the long run.

  9. J McKinney

    I live in Texas which is a community property state. My hubby has outstanding loans, which have been offset in the past. We have our misc. and medical expenses are not enough to be deductible so married filing separately allows me to get the child tax credits and itemize my mortgage and real estate taxes. In Texas, this also means that we have to combine both our incomes and tax payments together then split everything done the middle. We stacked the credits in my favor meaning that I will get a 4k refund and he will owe about 125. BTW he is also trying to set up a payment plan so this will no longer be an issue. #studentloanswillalwaysfindyou

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  12. Veronica Avilez

    The reason my husband and I want to file without him claiming me is because of my default students loans. The past two years we had to fill out the innocent spouse form and it took way too long to get out return. I was wondering if he would still get penalized even if I don’t work? So I wouldn’t be filling any tax return because I’m a stay at home mom. Does anyone know how that would work? We live in IL, I know every state is different. Thank you!

  13. pam

    Last year i filed jointly with my husband, who is behind in his child support, they took MY tax refund. while i agree that is a great way to get past due child support….they are not my children. what do you suggest i do?

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