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Among the many things in life that change for newlyweds is your tax return. You are no longer single or head of the household. You are now, by the power vested in you by the IRS, married filing jointly—or maybe married filing separately. How you file once could determine whether your tax bill or refund increases or decreases. Follow these steps for the lowest possible tax liability as a wedded couple.
Key Takeaways
- Deciding whether to file married filing separately or jointly can make a difference of thousands of dollars on your tax return.
- You have to be married on the last day of the tax year to file as a married couple.
- Student loan interest deductions, tuition and fees deductions, education credits, and earned income credits are only available if you file as married filing jointly.
- If you owe back taxes, your spouse won’t be penalized by filing jointly as long as they submit the Injured Spouse Allocation form.
- Some tax software automatically determines which method yields the lowest tax liability based on your inputs, so use it to fill out practice forms for both filing statuses.
Determine If You Can File As a Married Couple
You must be married by the last day of the tax year for which you and your spouse are filing as a married couple: A taxpayer’s marital status on Dec. 31 determines whether they’re considered married for that full year.
For instance, you won’t be able to declare yourself married on your 2023 tax return if you got married on Jan. 1, 2024, even though you will be married for more than three months at the time your tax return is due. These rules apply to legally married same-sex couples as to any other legally married couple.
Review Restrictions on Married Filing Separately
Married filing jointly is the more common way for couples to file, and there are plenty of reasons why that is so. Some of these reasons include access to deductions and credits. But that isn’t true for every couple.
Sometimes filing separately makes more sense. Living in a community property state, tax liens on one spouse, or restrictions on claiming deductions could decide how you file easier or harder. Here’s what you have to consider with each of these issues:
Prohibited Deductions and Credits
Married filing separately status prohibits you from claiming student loan interest deductions, tuition and fees deductions, education credits, and earned income credits. You could reduce your tax refund or raise your tax bill by more than a thousand dollars by filing separately.
The married filing separately tax filing status also limits your options on taking itemized or standard deductions. For instance, if one of you has enough deductions, such as property taxes or medical expenses, to itemize your tax return, the other spouse has to itemize, as well, even if that person would lose out on the Tax Cuts and Jobs Act’s generous standard deduction.
However, if the deductions are large enough—especially if it’s the less well-paid spouse who had, say, $40,000 in medical expenses for the year—the filing separately choice may be worth it.
The source of funds is highly important in this type of situation. According to the IRS, “…if you and your spouse live in a noncommunity property state and file separate returns, each of you can include only the medical expenses each actually paid. Any medical expenses paid out of a joint checking account in which you and your spouse have the same interest are considered to have been paid equally by each of you, unless you can show otherwise.”
Living in a Community Property State
If you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, you will have to deal with a whole set of complicated rules to decide what is considered community or marital income, and what is considered your income.
The rules can vary by state. Your combined income could be split equally between the tax returns and negate the purpose of filing separately. Consider using a reputable tax software—or hiring an accountant—if you live in a community property state and want to file separately.
You may be able to file your federal tax return directly with the IRS using the Direct File program. This pilot program is only available to people who lived in the following states in 2023: Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York. South Dakota, Tennessee, Texas, Washington State, and Wyoming. The service is free. Refer to the IRS website to see if you qualify.
Discuss All Possible Tax Liens
One reason many married couples file separate tax returns is that they have past-due prior debt, which could be deducted from their tax refund. This includes delinquent child support, past-due student loan repayments, or an unpaid tax liability one spouse incurred before the marriage.
The good news is that filing separately because of prior tax liens may not be necessary. The couple can file IRS Form 8379: Injured Spouse Allocation each year with their married-filing-jointly tax return until the spouse with liens gets caught up on their debt.
This keeps the spouse who doesn’t have the debt from being penalized for being on the return and losing out on their share of any tax refund. By filing jointly, the couple can still declare deductions and credits not available to those filing separately.
Consider the Income Factor
When one spouse makes more than the other, the marginal tax rates for both of them could be the best wedding present they’ve ever received.
For instance, let’s say Julie and Jane get married on Dec. 27, 2023. Julie is a marketing manager whose taxable income in 2023 will be $55,000. Jane completed her MBA on Dec. 15, 2023, and will have taxable income from her fellowship of $8,000.
If she hadn’t married Jane—or if she did her taxes as married filing separately—Julie would have had to pay 22% of her taxable income above $44,726 in taxes. Together and filing jointly, their marginal tax rate will be 12% for 2023. What’s more, they will get to claim the deductions and credits that would be prohibited for married filing separately.
The same rules apply to legally married same-sex couples as to any other legally married couple.
Prepare Two Tax Returns (or Ask an Accountant)
If the best option isn’t obvious, practice preparing your taxes for both married filing jointly and married filing separately. Doing so may take an extra couple of hours using tax software, but the potential savings are worth it. Some tax software will automatically determine which method will yield the lowest tax liability based on your inputs.
You could, alternatively, ask an accountant which option is best based on your circumstances. Remember, both spouses need to gather receipts and paperwork that support their deductions and credits. For example, you need backup to prove you can take student loan interest deductions.
Can My Spouse and I File Separately After Filing a Joint Tax Return?
Yes, you and your spouse can file separate tax returns at any time on a new return even if you’ve filed jointly in the past. Keep in mind that you can’t amend any previous joint returns to separate them. Filing separately may make sense in certain situations but you will lose out on certain tax credits and deductions if you do.
Who Qualifies As a Head of Household?
The head of household tax filing status applies to taxpayers who are single, divorced, or unmarried but support and house a qualifying individual, such as a child or a parent. This filing status allows qualifying taxpayers to claim higher standard deductions and lower tax rates than other filers.
Do I Need My Spouse’s Permission to File Separate Tax Returns?
No, you don’t need your spouse’s permission to file separate tax returns. However, you both need to file and sign separate returns. And it’s always a good idea to let your spouse know of your intention not to file a joint return.
The Bottom Line
If you file married filing separately, you are going to endure a more complicated tax process, especially if you live in a community property state. You will also likely lose out on key deductions and credits. On the other hand, if one spouse has significant deductible expenses—or liens against them—filing separately might make sense.
When the answer isn’t obvious, take the time to try out both options by filling out practice forms, then choosing the way that works best. And since financial issues are the focus of many a fight spouses have, the tax advantages to filing as a married couple is the best wedding present the IRS could give you.