What’s the Deal with Married Filing Separate?

When it comes to tax time, if you were legally married on December 31st of the tax year, then you can claim your filing status as either married filing jointly or married filing separately. Now that the feds recognize same-sex marriage, the same choice applies to same-sex couples, too. 95% of American married couples will file jointly. That means both spouses combine all their incomes and expenses to figure their taxes. Generally, filing jointly lowers your tax bill because the tax rate is lower for married couples. If you have similar incomes and don’t have lots of deductions and don’t plan to itemize, married filing jointly is generally the way to go.

However, a small percentage of Americans may find it advantageous to check the box “Married Filing Separately”. This filing status absolves you of legal responsibility for your spouse’s tax return and may lower your Adjusted Gross Income (AGI), which is the number used to determine if you qualify for some types of deductions (e.g. medical and unreimbursed employee expenses), some tax credits, and your tax bill. The spouse who has the lower income may benefit most by filing separately.

For example if you and your spouse jointly have an AGI of $150,000, only medical expenses above $15,000 (10% AGI) would qualify for a deduction. If your individual AGI is $30,000 and you have $5000 in medical expenses during the year, you could claim $2000 (the amount over 10% of your AGI) in deductions if you filed separately. But beware…

Choosing the married filing separately has lots of special rules. This status prevents you from claiming a whole host of tax benefits including the Child & Dependent Care Tax Credit, student loan interest deduction, and others. In addition, both spouses must do the same thing – either itemize or not. Notable, too, is that those who select Married Filing Separately pay the highest tax rate of all the filing statuses.

In general, those couples with large disparities in income and qualifying deductions will benefit most from filing separately. However, you’ll want to calculate your taxes both ways and be sure to consult your knowledgeable and helpful tax advisor to determine which filing status benefits you most.

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