Will Filing Taxes Jointly Save Money? (original) (raw)
Considering that a vast majority of couples file their taxes jointly each year, it must save them money, right? That's the conventional wisdom, but the reality is a bit more nuanced.
Filing jointly tends to net couples the most significant tax savings since they receive the highest standard deduction-not to mention additional tax deductions or credits which can slash a couple's tax bill even more.
However, some couples may be better off filing separately, especially if they have unique financial circumstances including hefty unreimbursed medical expenses or one spouse with tax problems in their past.
Is it better to file separately or jointly?
For most couples, filing jointly will be the right move, thanks in part to two key factors: the standard deduction and additional tax deductions and credits.
For the 2024 tax year, the standard deduction for joint filers is 29,200−twicethe29,200-twice the 29,200−twicethe14,600 for those who file separately.
Couples may also qualify for increased tax savings through popular deductions and tax credits. Deductions like contributions to traditional 401(k)s and IRAs or student loan interest payments could add up to thousands of dollars. Popular tax credits like the child tax credit, earned income credit and educational tax credits can reduce joint filers' tax bills even more.
While all taxpayers are entitled to credits and deductions, some credits can only be claimed by couples if they file jointly. Educational tax credits including the American Opportunity Tax Credit and Lifetime Learning Credit exclude those whose filing status is married filing separately (single filers can still take these credits). The Premium Tax Credit for those on Marketplace health plans also excludes most individuals filing separately.
David Gearhart, a certified public accountant with Regis Tax & Accounting in Tampa, Fla., tested the assumption that filing jointly saves money by analyzing a random sample of 20 tax returns he prepared for clients for the 2023 tax year.
In his analysis, he calculated each couple's return in two ways: as married filing jointly and married filing separately. All 20 of his clients came out ahead filing jointly, resulting in an average savings of 11% on their tax bills.
Married filing separately vs. married filing jointly brackets
To help spell out the savings that filing jointly can bring, it helps to understand how tax brackets for married filing jointly versus those for filing separately stack up side-by-side.
When filing jointly, a household can slightly increase its income and make the most of the higher standard deduction. For instance, say a couple has a combined income of 160,000−onespouseearns160,000-one spouse earns 160,000−onespouseearns50,000 and the other earns $110,000. In this case, filing separately would put one spouse in the 22% tax bracket and the higher earning spouse in the 24% tax bracket. Filing jointly, their combined income puts them both in the 22% tax bracket.
For higher earners, the savings become more profound. Consider a couple with a combined income of 380,000−onespouseearns380,000-one spouse earns 380,000−onespouseearns185,000 and the other $195,000. Filing separately, the lower income falls into the 24% tax bracket and the higher, into the 32% bracket-a huge jump. Filing jointly, their income is only in the 24% tax bracket.
Married filing separately vs. married filing jointly brackets for 2024
| Tax bracket | Single/Married filing separate | Joint filers |
|---|---|---|
| 10% | 0to0 to 0to11,600 | 0to0 to 0to23,200 |
| 12% | 11,600to11,600 to 11,600to47,150 | 23,200to23,200 to 23,200to94,300 |
| 22% | 47,150to47,150 to 47,150to100,525 | 94,300to94,300 to 94,300to201,050 |
| 24% | 100,525to100,525 to 100,525to191,950 | 201,050to201,050 to 201,050to383,900 |
| 32% | 191,950to191,950 to 191,950to243,725 | 383,900to383,900 to 383,900to487,450 |
| 35% | 243,725to243,725 to 243,725to609,350 | 487,450to487,450 to 487,450to731,200 |
| 37% | 609,350ormore∣609,350 or more | 609,350ormore∣731,200 or more |
| Source: Internal Revenue Service |
When to file separately
Before you take that 11% and run, however, Gearhart says there are times when couples not included in his sample would save more on their tax bills if they'd chosen to file separately.
The two most common scenarios are couples with significant unreimbursed medical expenses and those where one spouse holds student loans and wants a more favorable repayment plan. Some additional reasons to file separately go beyond the financial and broach the emotional, including a spouse with a spotty IRS track record or a couple contemplating separation or divorce. In these cases, it may pay off to abandon conventional wisdom and file separately to reduce your tax bill.
A family with unreimbursed medical expenses
Whether planned or a complete surprise, medical expenses can seriously dent your finances. The IRS lets you deduct your unreimbursed medical and dental expenses if the annual total exceeds 7.5% of your adjusted gross income. Filing separately could save couples considerably-especially if one spouse earns substantially less than the other-says Katy Song, a certified financial planner at Domain Money, a wealth management firm.
For example, Song has a couple whose joint income is $195,000, placing them in a 24% marginal tax bracket for 2023. Their son lives with a chronic illness, but his medical expenses wouldn't total the required 7.5% of AGI if they filed jointly. Filing separately gives them a significant advantage-and tax deduction.
"She makes 65,000,andthebillsforhersonarewellabove7.565,000, and the bills for her son are well above 7.5% of her income, so she can deduct those expenses," says Song. "Her husband makes closer to 65,000,andthebillsforhersonarewellabove7.5130,000 per year." In a nutshell, while this couple's individual incomes remain in the 24% tax bracket, they now only have to overcome the 7.5% threshold on the lower income to deduct their son's unreimbursed medical expenses.
Song notes that her client's situation is unique, and not all medical expenses qualify for this deduction. Yet, it's worth exploring if filing separately is the better path for couples facing one-off or ongoing medical bills that could meet the IRS's 7.5% AGI threshold.
A spouse with student loans
If you or your spouse have student loan debt that's in active repayment, those monthly installments can take a real bite out of your budget. To ease the strain, those with federal loans can request an income-driven repayment plan that caps payments at a percentage of their discretionary income. However, if you're married and filing jointly, you may earn too much to maximize your payment relief.
Filing separately could be the way to go to reduce your payments under one of these plans. For example, most IDR plans--including Saving on a Valuable Education, Pay As You Earn, Income-Based Repayment, and Income Contingent Repayment-only consider the borrower's income when calculating payments if the borrower is married but filing separately. For joint filers, however, IDRs consider both spouse's income in payment calculations.
For a married couple with no children and a combined AGI of $100,000, here's how your monthly payment might shake out under the PAYE IDE plan:
If filing jointly: $604.46
If filing separately and the borrower earns 60,000:∗∗60,000: 60,000:∗∗271.13
To help find the best option, the Department of Education offers loan calculators to help you find the repayment plan with the highest cost savings. It's also important to remember that you'll need to annually recertify your eligibility for your income-driven repayment plan. Therefore, if you separate your taxes to qualify for a lower monthly payment, you'll likely need to keep your taxes separate for the foreseeable future.
One spouse with a troubled tax history
Trusting another person with your financial well-being is a huge step in any relationship. If you're married, however, doing so could come back to bite you if your spouse runs afoul of the IRS.
"If you file jointly, you could be on the hook for the entire bill if your spouse were to ever not pay taxes," says Song. That's not to scare you off from filing jointly. It's simply the truth. Song's seen the ugly side of it in court.
"I have seen situations where the wife thought the husband was paying taxes, but then it turns out that he wasn't," Song says. "In the divorce, the wife ended up being on the hook for half the tax bill since she… signed the return."
Filing separately means you're only responsible for what's reported on your tax return, not your spouse's. For instance, if your spouse owes the IRS when they die, their debt lives on as a lien attached to their estate. In this case, that could mean the IRS places a lien on your home or other assets. The only way to lift the lien is to settle the tax debt. If you and your spouse had filed separately, you wouldn't be held liable for their tax debt.
If having an open and honest conversation about money isn't an option, you could nip this situation in the bud by requesting your joint tax transcripts from prior years. You'll need to file a Form 4506T - Request for Transcript of Tax Return. The good news? It only requires one spouse's signature for joint returns, and you can easily see if the return you signed is the return your spouse filed.
You're separating or divorcing
What's joined together can sometimes fall apart. The same applies to your tax returns if you and your spouse are separating or divorcing.
Dividing your finances at tax time can offer multiple emotional and financial benefits. On the emotional side, filing separately could draw a line between the marriage behind you and the life ahead. Knowing that you can handle filing taxes on your own, especially if your spouse was always in charge, can be a boost when you go from a duo to a solo.
Having a clear picture of your annual tax obligations can also help you and your spouse-or your attorney-have more productive conversations about aspects of your split. Conversations about spousal and child support can often benefit from a clear picture of each spouse's AGI and annual tax bill.
When dissolving a relationship, it's good to consult with both an attorney and a tax professional with divorce experience. Their unique expertise can help you face this time of transition with increased financial confidence.
Meet the contributor
E. Napoletano is a contributor to Buy Side from WSJ.