How to settle tax debt

Married Filing Separately, Jointly, or Single: Which Filing Status Is Best

When filing your tax return, one of the first questions you’ll face is, “What is your filing status?” Your answer determines how the IRS will treat your return and can make a huge difference in what you owe. Therefore, it’s important to make the right choice.

But how do you decide? Let’s take look at the advantages and disadvantages of each filing status. Plus, we’ll discuss in more detail the most confusing status, “Married Filing Separately.”

Why is filing status important?

Filing status determines whether you have to file, as well as how much you owe in taxes for the year. Each status also has eligibility requirements. That means that if you pick the wrong one, you put yourself at risk of an audit.

If you can qualify for more than one filing status, you’ll need to decide which one is most advantageous to you. The five options are:

  • Single.
  • Head of the household.
  • Married filing jointly.
  • Married filing separately.
  • Qualifying widower with dependent child.

Let’s take a closer look at each.

Married filing separately (MFS)

Choose this status if you are married but want to keep your finances separate. With the MFS status, you and your spouse will file two completely separate tax returns.

A joint return holds both spouses liable for the accuracy of the return and the resulting taxes. If you’d prefer to only be responsible for your return and the taxes due on the income you’ve earned, you’ll want to consider filing separately.

However, it’s important to understand that MFS is usually the least tax-efficient filing status. That’s because with MFS, you can’t claim all the tax benefits that come with marriage. These include:

  • Earned income credit.
  • Child and dependent credit.
  • Elderly and disabled credit.
  • Lifetime learning credit.
  • American Opportunity credit.
  • Student loan interest deduction.
  • Tuition and fees deduction.
  • Tax-free exclusion of U.S. bond interest and social security benefits.

Additionally, you’ll face lower income phase-out limits for the IRA deduction, and will hit higher tax brackets with lower levels of income.

If you select this filing status, you should have a really good reason, as you do forfeit several benefits.

When might married filing separately make sense?

Here are a few scenarios when married filing separately can make sense.

A large difference in income between spouses

The married filing separately status can be beneficial if there is a large income gap between you and your spouse. For example, say that you earn $20,000 while your spouse earns $150,000. If you file your taxes separately, you’ll benefit from a lower tax bracket. Plus, you may be able to get a larger refund than you would if you filed jointly.

You have large deductible expenses based on Adjusted Gross Income (AGI)

If you have large deductible expenses that are based on your AGI, like medical bills, the savings may be enough to cover any losses you incur by filing separately.

For example, say you can deduct a medical expense that is more than 10% of your income. Your income is $100,000, and your expense is $20,000, so you could deduct $10,000 if you file alone. However, if your spouse makes $150,000 (bringing your joint income to $250,000), you would completely lose the deduction by filing together.

Separate liability

If you have any doubts about your spouse’s financial practices or your future together, filing separately can ensure you are not liable for their choices. You can worry about your taxes and they can worry about theirs.

Your spouse owes taxes to the IRS

If you file jointly and your spouse has a qualifying debt, the Treasury Offset Program allows the Department of Treasury to seize your refund to repay the debt. In this case, filing separately may be beneficial.

However, if you invoke innocent spouse relief when filing jointly, you may be able to keep part of the refund without having to file separately.

You’re on an income-based student loan repayment plan

Lastly, if you are repaying student loans according to an income-based repayment plan, filing jointly could cause your payment amount to go up (to reflect the combined income of both spouses). If you want your payment based solely on your income, you should file separately.

However, it’s always wise to calculate the benefits of both options.

To sum up, let’s look at the costs and benefits of a married couple filing separate tax returns.

WEIGH THE RISKS & BENEFITS

Here is a list of the benefits and the drawbacks to consider.

Pros
  • No liability for spouse’s taxes.
  • Can help you to save when itemized deductions require a threshold expense compared to income.
Cons
  • Limited tax deductions and credits.
  • Less favorable tax rates.
  • Tedious filing process.
  • Lower Alternative Minimum Tax exemption.
  • More of your social security benefits are taxable.

Married filing jointly

Next, let’s take a look at the “married filing jointly” status, which is the most common choice for married couples. This status should save you much more on taxes than filing separately, as it offers a number of tax benefits.

WEIGH THE RISKS & BENEFITS

Here is a list of the benefits and the drawbacks to consider.

Pros
  • Better tax rates.
  • More deductions.
  • More credits.
  • Social security tax benefits.
  • More convenient filing process.
Cons
  • Joint liability if your spouse breaks tax laws or owes a large amount.
  • Not viable if you are going through a divorce or separation.
  • May lose savings from itemized deductions.

Head of household

The head of household filing status is for individuals who:

  • Pay more than half of a household’s expenses,
  • Are unmarried for the tax year, and
  • Have a qualifying child or dependent.

This is the IRS’s way of recognizing the challenge of taking care of someone else financially. The dependent in question can be your child or parent, but it can also refer to anyone living in your home who depends on you financially.

WEIGH THE RISKS & BENEFITS

Here is a list of the benefits and the drawbacks to consider.

Pros
  • Lower tax rate than ‘Single’ filing status.
  • Higher standard deduction than a “Single” filer.
  • More favorable tax rates.
  • Qualify for all credits and deductions.
Cons
  • You can’t qualify if you are married unless your spouse has not lived with you for at least six months of the tax year.
  • Must have a qualifying child or dependent.

Single

The Single filing status is for people who were not married on the last day of the calendar year and who have no qualifying dependents. If you are single but will claim dependents, the Head of Household filing status will provide more advantages for you.

WEIGH THE RISKS & BENEFITS

Here is a list of the benefits and the drawbacks to consider.

Pros
  • High-income earners may have lower tax brackets than they would if they were married filing jointly.
Cons
  • Fewer deductions and credits than other statuses.
  • Higher tax liability in many cases.

Widow(er) with dependent child

If your spouse passed away, leaving you to care for a dependent alone, this status can provide you with many tax benefits.

WEIGH THE RISKS & BENEFITS

Here is a list of the benefits and the drawbacks to consider.

Pros
  • Keep the tax benefits of the ‘Married Filing Jointly’ status.
  • Highest standard deduction.
  • Lower tax rate.
  • Lower-income requirements for tax credits and deductions.
Cons
  • To qualify, you must pay at least half the costs for maintaining the home, have a qualifying dependent, and cannot remarry.

Find the best filing status for you

In many cases, your choice of filing status is simple, because there is only one option. However, there are taxpayers who are forced to choose between multiple statuses. In this case, it’s important that you fully understand your options. Not sure which choice is right? It may help you to enlist the help of an expert. Tax preparation firms can run the numbers and show you which status will help you the most.

Not sure where to find a tax expert? Review and compare leading vetted firms below.