Married Filing Jointly vs. Separately: Which Tax Filing Status is Better?

Married couples can choose to file their taxes jointly or separately. This is something that you can change every tax year, but choosing the right option for each year can save you hundreds of dollars.

The financial dynamic of married couples is different compared to single life. You and your spouse are working towards a better future for your family. Often, couples open joint accounts in a bank where they delegate a percentage of their earnings and use this budget for home renovations, investments, purchases, etc.

Having said that, let’s compare married filing jointly vs. separately.

Married Filing Jointly: Earn Tax Benefits

Filing separate tax returns has numerous benefits, and you typically get lower tax rates when married and filing jointly, but you get some other advantages as well. Let’s explore these benefits in greater detail.

Get a Lower Tax Rate

With the lower tax return, you will not pay as much in taxes for that year. Married couples filing jointly have the opportunity to save some money on their tax return with this simple action.

According to John Loyd, a tax professional and certified financial planner: “The IRS seems to have the viewpoint that if someone is filing separately, they’re doing something shady.

This isn’t necessarily true because there’s a case to be made for filing separately, as you’ll see later in this article. But if you don’t have a good reason to file taxes separately, it is much easier to do it with your spouse, and you get a lower tax rate along the way.

Earn Credits and Tax Deductions

With the joint tax returns, you are eligible to apply for multiple tax credits, such as:

Filing separately doesn’t provide you with the credits that we listed above. Furthermore, when you file a joint return, you also receive a higher income threshold for certain taxes and deductions. This means that you and your spouse can earn more and still qualify for certain tax breaks.

Contribute to Roth IRA

If you are married filing separately, you limit yourself to contributing to a Roth IRA. For example, in the tax year 2022, if you had a combined modified adjusted gross income of less than $214,000, you could make contributions to your Roth IRA.

On the other hand, if you’ve been living with your spouse but you decided to file separately, you could contribute only if your income was less than $10,000, which is rarely the case.

If you are in doubt about whether to file taxes jointly or separately and you want to make Roth IRA contributions, filing jointly is the way to go.

Married Filing Separately: Pays Off Only Under These Terms

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Filing separately tends to have more disadvantages than benefits, but there are cases in which you want to consider this option.

Married filing separately status involves separate tax returns filed by each individual. When you file separate returns, you report your own income, deductions, and credits, but be careful not to get penalized by the tax code just because you refused to team up. Here are some instances from which separate filers can benefit.

Student Loan Payments

Although you will not have fewer tax benefits if you file your own tax return, if you have some student loans you need to pay off, this can make sense. Your earnings and adjusted gross income determine what’s due every month and the student loan interest, and with a joint tax return, you’d have more money to pay.

Start with a clean slate

With a lot of people paying off their student debt well after they graduate, this is one of the more common instances where we see spouses filing separately. It makes much more sense to have separate filers and lower the cost of your debt. Although this can have an impact on some other aspects of your life, it does improve your personal finances, and you don’t take anything away from your spouse’s income.

From the moment you pay off your debt, you can start filing taxes jointly.

Medical Expenses

There’s a way to reduce the adjusted gross income if you have medical expenses—and that’s to file separately. According to Marianela Collado, a CFP and CPA at Tobias Financial Advisors in Plantation, Florida, filing separately in this case makes a lot of sense.

There is a possibility of claiming a tax break for unreimbursed medical expenses that exceed 7.5% of your adjusted gross income. You will be able to go over that threshold if you file separately. The filing status here matters if you want to receive these benefits.

Keep in mind that here, you need itemized deductions or take the standard deduction. This is the only way to receive tax breaks.

Trust Issues

Sometimes, partners don’t fully trust each other financially. One spouse may want to file jointly, while the other spouse could demand to file separately. Filing separately may further degrade your relationship, but if one spouse believes that the other spouse is hiding income or engaging in shady behaviors, there’s a case that can be made for filing separate returns.

Why file separately?

Taxes filed jointly can put you in an uncomfortable position if this turns out to be true and lead to a divorce. Once legally separated, you could face some legal repercussions.

Filing Taxes Jointly or Separately: Special Circumstances

As you can see, married couples filing separately may require some conditions to be met, but filing your tax return isn’t just about that one case. You need to look at the overall picture before you decide whether to file jointly or separately.

  • Here are some of the questions you need to consider before you make a final decision.
  • What’s your taxable income?
  • Do I have medical expenses?
  • Can I get the student loan interest deduction if I file taxes separately?
  • What does the tax code say in my case?
  • Will we pay more tax if we file jointly or less?

How to Decide Which Filing Status is Right for You?

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At the end of the day, it is all about trade-offs and what you prioritize. A joint return is much more common as you can contribute to your Roth IRA and get some benefits while attracting less attention from the IRS. Married couples who want to file separately can do so until the filing deadline, when they can change their status.

Our advice is to pay taxes together and only do so separately under the circumstances we listed here. Besides the obvious benefits, filing together opens doors to the Earned Income Tax Credit, the Adoption Credit, and other help plans the government has available.

Go One Step Further: How To Make Tax Returns Even More Beneficial For You?

Filing your taxes together with your spouse is a great first step, but you can do much more. Using your whole-life insurance policy as collateral to borrow against your life insurance and pay yourself interest while covering all the necessary expenses can help you drastically improve your financial situation in the long run.

Your cash value keeps growing, and you’re adding to it as you pay your premiums. This is a great way to use your finances and your whole life insurance policy.