Married Filing Separately: When Does It Make Sense to File Separately?

Introduction

Most married couples file their tax returns as Married Filing Jointly (MFJ) because of lower tax rates and higher deductions. However, in certain situations, filing Married Filing Separately (MFS) can be beneficial.

This guide explores when filing separately makes financial sense, references relevant IRS tax codes, and provides a step-by-step decision-making process for married couples.

  Tax Code References for Filing Status (IRC § 1 & § 63)

• IRC § 1 outlines tax brackets and rates based on filing status.
• IRC § 63 defines the standard deduction for married couples filing separately and jointly.
• IRS Publication 501 provides guidelines on when married couples should consider filing separately.

  What is Married Filing Separately (MFS)?

Married Filing Separately (MFS) is a filing status that allows each spouse to file their own tax return instead of filing a joint return.

Who Can File Separately?

• Couples who are legally married as of December 31 of the tax year
• Spouses who do not want to share tax liability
• Couples where one spouse wants to claim deductions separately

Filing separately may make sense in specific cases, but it can limit eligibility for deductions and tax credits.

  Differences Between Married Filing Separately and Married Filing Jointly

The IRS treats married couples who file separately differently than those who file jointly.

 Advantages of Filing Separately

Some situations make Married Filing Separately beneficial.

• Protecting One Spouse from Tax Liability
  • If one spouse has IRS tax debts, student loan defaults, or legal judgments, filing separately prevents the other spouse from being held responsible for those debts.
• Lowering Adjusted Gross Income (AGI) for Certain Deductions
  • Some deductions, such as medical expenses, can only be claimed if they exceed 7.5% of AGI. Filing separately may allow a spouse with high medical expenses to claim a larger deduction.
• Minimizing Tax on Social Security Benefits
  • Filing jointly may push a couple’s combined income into a higher bracket, causing Social Security benefits to be taxed. Filing separately may reduce the taxable portion of Social Security benefits.
• Avoiding Joint IRS Liability
  • If one spouse has self-employment income or unreported earnings, filing separately protects the other spouse from being responsible for tax penalties.

  Disadvantages of Filing Separately

While Married Filing Separately provides some advantages, it also comes with major limitations.

• Higher Tax Rates
  • Tax brackets for MFS filers are significantly higher than for those filing jointly.
• Loss of Tax Credits
  • MFS filers cannot claim the Earned Income Tax Credit (EITC) or education tax credits.
  • The Child Tax Credit (CTC) is reduced for MFS filers.
• Restrictions on IRA Contributions
  • MFS filers with incomes over $10,000 are not allowed to deduct traditional IRA contributions if they or their spouse have workplace retirement plans.
• Potential for Higher Taxes
  • Filing separately may result in higher total tax liability compared to filing jointly.

Example Comparisons of Tax Liability for Married Filing Separately vs. Jointly

Example 1: Medical Expense Deduction

• Jack and Lisa have a combined income of $100,000.
• Lisa has $12,000 in medical expenses.
• If they file jointly, medical expenses must exceed $7,500 (7.5% of AGI) to be deductible.
• If Lisa files separately, her AGI is lower, and she can deduct more of her medical expenses.

Example 2: Student Loan Interest Deduction

• Mark and Sarah each have student loan payments of $2,500 per year.
• If they file Married Filing Jointly, they can deduct up to $2,500 in student loan interest.
• If they file Married Filing Separately, they cannot deduct any student loan interest.

Filing separately may help in specific high-medical-expense situations, but for most couples, filing jointly results in more tax savings.

Step-by-Step Guide to Determine if Filing Separately is Beneficial

Step 1: Compare Tax Brackets

• Review IRS tax brackets for MFS vs. MFJ to see how tax liability changes.

Step 2: Check Eligibility for Tax Credits

• Determine if filing separately eliminates eligibility for tax credits.

Step 3: Calculate Potential Tax Savings

• Use IRS tax calculators to compare total tax liability under both statuses.

Step 4: Consider Debt or Legal Issues

• If one spouse has tax debts, legal judgments, or loan defaults, filing separately protects the other spouse from liability.

Step 5: Consult a Tax Professional

• If unsure, speak with a CPA to determine which filing status provides the best financial outcome.

IRS Compliance Requirements

To comply with IRS rules:

• Married couples must agree on filing separately and use the same deduction method (standard or itemized).
• Medical expenses and other deductions must be allocated properly between spouses.
• Taxpayers cannot switch to Married Filing Jointly after the tax deadline unless an extension is filed.

Conclusion

Filing Married Filing Separately is beneficial in specific cases, such as protecting one spouse from tax liability or maximizing medical deductions. However, in most cases, Married Filing Jointly provides greater tax benefits, including lower tax rates, higher deductions, and eligibility for more tax credits.

For expert guidance on selecting the best filing status, consult Anshul Goyal, CPA EA FCA, a Certified Public Accountant and IRS compliance expert, to ensure tax savings and compliance.

FAQs

1. Is it better to file Married Filing Separately or Jointly?

In most cases, Married Filing Jointly results in lower taxes. However, filing separately may be better if one spouse has high medical expenses or legal liabilities.

2. Can Married Filing Separately reduce student loan payments?
Yes, filing separately may reduce income-based student loan repayment amounts, depending on loan servicer rules.

3. What tax credits are lost by filing separately?
MFS filers cannot claim the Earned Income Tax Credit (EITC) or student loan interest deduction.

4. Can I change from Married Filing Separately to Jointly later?
Yes, taxpayers can amend a return to switch from MFS to MFJ within three years of the original filing deadline.

5. Does filing separately affect state taxes?
Some states have different tax rules for MFS filers, which may increase state tax liability.

About Our CPA

Anshul Goyal, CPA EA FCA, is a Certified Public Accountant (CPA) and IRS compliance expert specializing in tax strategies for U.S. and Indian taxpayers.

For expert tax filing guidance, schedule a consultation with Anshul Goyal, CPA EA FCA.