When tax return season rolls around, married couples have to decide whether to file their taxes jointly or separately. Filing jointly is far more common and usually results in a lower tax bill. However, there are certain situations where filing separately makes good financial sense. Couples with student loans, self-employment income or high medical expenses may be able to save money filing separately. A session with a financial advisor can supply tailored guidance on filing status and other tax minimization strategies.
Filing Status Fundamentals
The IRS gives married taxpayers two choices for filing status when reporting federal income taxes:
Married filing jointly: You and your spouse combine all income, deductions, credits, etc. onto a single tax return. This effectively doubles certain tax thresholds and limits that apply to each individual.
Married filing separately: You and your spouse each file completely separate federal returns, reporting only your own individual income, deductions, etc. Certain tax breaks are reduced significantly or eliminated under this status.
As a default, the IRS expects most married couples to file jointly. But filing separately can pay off in select instances.
Why Filing Status Matters
Your filing status determines the size of your standard deduction, tax bracket thresholds, contribution limits for retirement accounts and eligibility for various tax breaks. For example, the 2023 standard deduction for married filing jointly is $27,700 ($29,200 in 2024) versus just $13,850 ($14,600 in 2024) for married filing separately.
Filing status also affects income phaseouts for certain deductions and credits that can make it advantageous to file separately. For instance, say one spouse has a large sum of unreimbursed medical bills. Since they can only deduct medical expenses in excess of 7.5% of your adjusted gross income, the combined income may make those expenses non-deductible. But filing separately will lower reported income on each return, improving medical expense deductibility on the return of the partner with the high bills. Be aware that if one spouse itemized deductions, the other spouse can not use the standard deduction.
Filing separately also comes into play if you or your spouse uses an income-based repayment plan for federal student loans. Those plans base your expected monthly payment exclusively on your individual income when taxes are filed separately. This can dramatically reduce loan payments compared to filing jointly if there is a wide gap in earnings between spouses. However, you may lose access to other tax breaks as a trade-off.
Filing Status Selection in Action
Consider a hypothetical married couple. One partner earns $95,000 annually as a director at a nonprofit while the other makes $55,000 working for the local school district.
For tax year 2023 (which are due in 2024) if a couple files taxes jointly, their standard deduction would be $27,700. This would drop to $13,850 each if they opt for married filing separately status. In their case, the joint deduction combined with their income levels yields a lower total tax bill when compared with going solo on their returns. Here are details:
Scenario One: Married Filing Jointly
- Standard deduction: $27,700
- Combined Income: $145,000
- Taxable Income: $145,000 – $27,700 = $117,300
- Taxes owed: $16,421
Scenario Two: Married Filing Separately
First partner’s return:
- Standard deduction: $13,850
- Income: $90,000
- Taxable Income: $90,000 – $13,850 = $76,150
- Taxes owed: $12,061
Second partner’s return:
- Standard deduction: $13,850
- Income: $55,000
- Taxable Income: $50,000 – $13,850 = $41,150
- Taxes owed: $4,718
Total taxes owed by both partners: $12,061 + $4,718 = $16,779
In this case, the total taxes owed by the couple if they file separately would be $358 higher, $16,779 versus $16,421 if they filed jointly.
Now assume the situation changes. The first partner enrolls in a Ph.D. program and needs to begin making payments on $65,000 in federal graduate school debt. An income-driven repayment plan could reduce their monthly student loan payments significantly if the other spouse’s income isn’t factored into the calculation. In this case, filing separately may save thousands of dollars yearly on student loan payments. (Take note: Lowering loan payments can result in paying significantly more interest over the life of the loan.)
Making the Call
In practice, less than 5% of married couples file separately. By filing jointly, married taxpayers can gain access to a larger standard deduction, may qualify for more tax credits and can potentially exempt more investment income from capital gains taxes as joint filers. That said, running the numbers both ways before you file can pay dividends in certain situations:
- When one spouse has high medical expenses, charitable donations or miscellaneous write-offs that could exceed the married filing separately standard deduction.
- If an income-driven federal student loan repayment plan would dramatically cut payments based on one spouse’s income alone.
- To limit one partner’s exposure to the other’s tax debt in cases such as self-employment, underpayment penalties or issues stemming from a previous marriage.
Bottom Line
While married filing jointly makes sense for most couples, it may not always be the best approach. Evaluate whether filing separately might produce tax savings in special situations related to income limits on deductions, student loan repayment options tied to your income, or controlling tax liabilities. As with many money matters tied to the IRS, doing a little homework can pay big dividends at tax time.
Tax Planning Tips for Beginners
- Given the way circumstances can change, you may want to consider meeting with a financial planner annually to evaluate whether your current filing status still makes the most sense. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- SmartAsset’s Income Tax Calculator gives you a heads-up on what to expect at tax time.
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