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When do I file MFS versus MFJ?

Your marriage status has a large impact on your taxes. But even when you’re married, you still have a serious tax choice to make. While taxes aren’t the most romantic topic to discuss with your partner, you’ll want to have the talk. So, cuddle up in bed, get a glass of wine, grab your tablet, and read this article to each other.

If you’re married by December 31st (even at 11:59 pm), you have two choices to make. You can file jointly or separately. Your choice will have several tax implications.

It’s more common for married couples to file jointly than it is for them to file separately.

That’s because in most cases, filing jointly results in a lower tax bill. But that’s not necessarily the case for you.

“Married Filing Jointly”(MFJ for short) is the most common type of filing status that married couples can claim each year and record each of their:

- Incomes
- Deductions
- Credits
- Exemptions

on the same return. 

This is in large part because it carries several advantages, especially when one partner’s income is significantly higher than the other.

Standard Deduction 

The IRS Standard Deduction allows taxpayers to reduce their taxable income. It’s available to everyone regardless of other credits and deductions they qualify for and it’s provided on a no-questions-asked basis. But while anyone can claim it, your tax filing status determines how much you can deduct.

The IRS provides married couples filing jointly with one of the largest standard deductions. The standard deduction is $24,400 for married couples filing jointly. This allows both partners to immediately deduct a significant portion of their income. It’s also higher than the $18,650 allotted to heads of households. For MFS, the standard deduction is $12,200 (half of the MFJ standard deduction).

Earned Income Tax Credit

The Earned Income Tax Credit is available to married couples with children making $55,592 or less. The credit can provide the couple with up to $6,557 a year in tax savings.

The eligibility requirements for the credit are:

- Filing independently or jointly
- If married, both partners and their children must have valid social security numbers
- The filer must be aged 25-64

While low-income earners can file independently, married couples filing jointly receive far more benefits. Individual filers with no children can only claim the credit if they make less than $15,570. But they may only receive up to $529.

Checking your eligibility for the Earned Income Tax Credit yearly is highly recommended. But doing so is far more beneficial for low-mid income earners married with children. Most physician households will not qualify for this credit but it is good to keep in mind for adult children or other family members.

Contrary to what some believe, self-employment isn’t a barrier to applying for the credit. However, an investment income of over $3,600 can disqualify you in some cases.

Education Tax Credits

Married couples with children can benefit from the American Opportunity and Lifetime Learning tax credits. These credits can be used for tuition, fees, and qualifying educational expenses. The credit can be claimed by students, as long as they are paying taxes. Otherwise, it can be claimed by the student’s parents. There is a great tool on IRS.gov to help you determine if you are eligible to claim an education credit.

Child and Dependent Care Tax Credit

According to the IRS Child and Dependent Care Tax Credit can be claimed if an individual or couple incurs expenses caring for:

- A dependent qualifying child under 13 years old at the time the care was provided.
- A spouse who was physically or mentally incapable of self-care and lived with you for more than half of the year.
- An individual who was physically or mentally incapable of self-care, lived with you for more than half of the year, and either: (a) was your dependent; or (b) could have been your dependent except that he or she received gross income of $4,200 or more or filed a joint return, or you (or your spouse, if filing jointly) could have been claimed as a dependent on another taxpayer's 2019 return.

Other Credits & Deductions

Married couples filing jointly receive benefits from claiming:

- Deductibility of contributions to a Traditional Individual Retirement Account (IRA)
- Deduction of net capital losses in excess of capital gains
- Education credits such as the Elderly and disabled credit and Lifetime Learning Credits
- Exclusion or credit for adoption expenses
- Roth IRA Contributions
- Student loan interest deduction
- Tax-free exclusion of U.S. Bond Interest and Social Security Benefits

The main benefit of filing jointly with your spouse is not missing out on the lower tax bill.

Standard deductions for couples that file separately are lower than those for couples filing jointly. The standard deduction for married couples filing jointly was $24,400 in 2019. Single taxpayers and couples filing separately receive a standard deduction of $12,200. 

By choosing to file separately, both couples are disqualified from several of the tax credits and deductions mentioned above.

Married Filing Separately (MFS for short) is the tax status assigned to married couples who choose to file their own tax returns independently from their spouse.

Each partner thus chooses to record their own incomes, exemptions, credits, and deductions. MFS is less common than joint filing. That’s because, for most couples, filing jointly results in a lower tax bill. But that’s not always the case.

MFS isn’t the equivalent of two single individuals filing their taxes and applying whichever tax rules they want independent of what the other spouse is doing. For example, if one spouse itemizes their deductions, their partner must do the same.

The basic qualifications for filing separately are the same as those for filing jointly. Even if you’re married, you can choose to file separately. If you and your spouse can’t agree on how to file your taxes, filing separately is the default option. 

You will need to do some additional calculations if you reside in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin). You have to report your separate income and deductions on your tax return and also include half of your combined community income and deductions. The filing instructions include a worksheet to help determine the correct reportable income.

Also, even though you’re filing separately, you must include your spouse’s information (name and social security number) on your tax returns.

The most notable downside of Married Filing Separately is that you lose access to the Earned Income Tax Credit.

Not having access to this credit means that your tax liability will be higher in many cases. Also, you won’t have access to the American Opportunity Credit and the Lifetime Learning Credit, Adoption Tax Credit, student loan interest deduction, and your Child Tax Credit, Saver’s Credit, and capital loss deduction will be cut in half. In addition, if you file MFS and live with your spouse during the year, you cannot deduct passive losses from your rental real estate activities.

One of the main reasons couples choose to file their taxes separately is to keep each partner in a lower tax bracket.

This helps keep each partner’s tax bracket in a lower category. The result is a lower tax burden, and access to some tax benefits not afforded to higher-income earners.

If you don’t want to be liable for your spouse’s taxes, filing separately is the way to ensure your spouse’s tax burden isn’t linked to you.

When you file your taxes jointly, you are both responsible for discrepancies in each others’ incomes, deductions, and credits. So, if you suspect your spouse is making false claims on your joint taxes, filing separately can protect you. You won’t be held liable should they falsify their income or claim deductions and credits falsely.

MFS can also be an excellent choice in the following circumstances.

Student Loan Repayments

Many physicians come out of residency saddled with student loan debt. If you are in an income-based repayment program, you will want to keep your income as low as possible in order to keep your student loan monthly payments as low as possible. This is especially true if you are going for Public Service Loan Forgiveness (PSLF). It’s important to do the math to see if the increased tax burden of filing MFS versus MFJ will be less than what you would have to pay in monthly student loan payments if you were to file jointly.

High Medical Expenses

If you and/or your spouse have a large amount of medical expenses, you will want to consider MFS status. Your medical expense deduction on your Schedule A is limited by the 10% of adjusted gross income. This means, you have to have more medical expenses than 10% of your AGI. If you do not, then you will not be able to take the medical deduction. By choosing MFS, your AGI will be lower, thus allowing you to potentially deduct your medical expenses. 

Common Property

There is one important factor to keep in mind. In some common property states, rules surrounding spouses filing their incomes separately are a bit more complicated. If you live in one of these states, you should consider consulting a tax professional to make sure you’re filing your taxes in the best way possible.

Regardless of what state you live in, making the right tax decisions when you’re married isn’t always clear-cut.

We’ve already gone over the generalities surrounding choosing to file your taxes jointly with your spouse or filing separately. But with the right professional assistance, you can ensure that you’re: 

a) Saving yourself and your spouse the most money when you file your taxes

b) Filing your taxes completely and avoiding errors that can lead to more trouble from the IRS 

c) Protecting yourself in the case that you or your spouse are making erroneous claims on your tax returns, whether accidentally or intentionally

d) Making the best decision in terms of student loan repayments

In many cases, you and your spouse will find it easy to make the right tax decisions. But if you’re at all unsure of how to file your taxes while married, hiring the right professional can save you a lot of money and grief.