When Does it Make Sense for Married Taxpayers to File Separately?

A reader writes in, asking:

“Under what circumstances does it make sense for a married couple to file separate tax returns rather than file jointly?”

In most cases, it doesn’t make sense. That is, in most cases, a married couple will end up paying more total tax by filing separately than by filing jointly. There are, broadly speaking, two reasons for this.

Reasons Not to File Separately

First, by filing separately, you’re made ineligible for a number of tax breaks, including (but not limited to):

• The student loan interest deduction,
• The American Opportunity Credit,
• The Lifetime Learning Credit,
• The earned income credit,
• The premium tax credit (with a possible exception for victims of domestic abuse),
• The child and dependent care credit (with a possible exception for married people who live in separate homes), and
• The adoption credit (also with a possible exception for married people who live in separate homes).

The second reason has to do with tax brackets. For married couples in which one spouse earns significantly more than the other, filing jointly allows the income from that higher-earning spouse to stay in a lower tax bracket. Conversely, if the couple files separately, the low-tax-bracket space of the spouse with no/low earnings will go unused.

Reasons to File Separately

There are four general types of reasons for filing separately.

The first reason is simply that the couple is in fact separated (though still married) and filing jointly simply wouldn’t be feasible.

A second, less common reason for filing separately is that one of the spouses has to publicly disclose his/her tax returns for some reason, and the couple wants to keep as much information private as possible (by keeping it off the publicly-disclosed return).

A third reason for one spouse wanting to file separately is to avoid being made jointly liable for any amounts due on the other spouse’s return. (If this is a concern for you, you would do well to discuss the issue with a tax attorney.)

Finally, there are some uncommon cases in which filing separately can actually result in tax savings. These cases tend to be the result of the couple wanting to take better advantage of a particular deduction that is reduced by a certain percentage of their income. For example, the itemized deduction for medical expenses is reduced by 10% of your adjusted gross income (7.5% if you’re age 65 or over). As a result, if one spouse has a lot of medical expenses in a given year, it can sometimes make sense to file separately so that the amount by which the deduction is reduced is a smaller figure (because it’s based on just that spouse’s income rather than the couple’s combined income).

Other deductions that could provide a similar motivation to file separately would include:

• The itemized deduction for casualty losses, which is reduced by 10% of your adjusted gross income, and
• Miscellaneous itemized deductions that are (collectively) reduced by 2% of your adjusted gross income (e.g,. unreimbursed employee expenses and tax preparation fees).

Of note: If you’re claiming one of these itemized deductions, rather than simply filing separately, it’s important to do the math both ways (i.e., filing separately and jointly) to see which works better, as the disadvantages of separate filing that we discussed above often outweigh the additional savings you might get from being able to claim a larger itemized deduction.