So, Married taxpayers: you can elect to be taxed Jointly or Separately/Single on your paycheck, and eventually prepare your annual Income Tax Return with that status to report your numbers.
Which status is best for you to file with as a married couple?
Your filing status determines TAX RATE (% at which your income is taxed) and STANDARD DEDUCTION (amount of income not subject to (or, “saved from”) federal income tax. Therefore, selecting the correct filing status can help you get the biggest refund.
When you get married, you notify the IRS when you select one of the “Married” filing statuses on your annual Income Tax Return.
If you work a W-2 job, you can notify your employer/accounting to update your Tax Withholding (amount withheld and remitted for taxes) at any point during the year – you don’t have to wait.
The legal definitions of the two “Married” tax filing statuses are:
● Married filing jointly (MFJ): To file jointly means you file a single return, which will
include the income and deductions for BOTH spouses.
● Married filing separately (MFS): Each person files their own return, keeping incomes
and deductions separate.
2022 IRS INCOME TAX BRACKETS:
The lowest rate is 10% for incomes of $20,550 for married couples filing jointly – or,
individuals “Married Filing Separately” with incomes of $10,275 or less.
Income below $20,550 means the Married Filing Jointly couple will pay 10% Income Tax rate.
● 37% for MFJ income over $647,851 ($323,926 for MFS)
● 35%, for MFJ income over $431,901 ($215,951 for MFS);
● 32% for MFJ income over $340,101 ($170,051 for MFS);
● 24% for MFJ income over $178,151 ($89,076 for MFS);
● 22% for MFJ income over $83,551 ($41,776 for MFS);
● 12% for MFJ income over $20,551 ($10,276 for MFS).
WHAT IS THE STANDARD DEDUCTION FOR MARRIED COUPLES FILING JOINTLY?
For the tax year 2022, the standard deduction for MARRIED FILING JOINTLY status
is increased to $25,900, an $800 increase from the previous year.
The standard deduction for Single and Married Filing Separately filers increased by
$400 to $12,950, and Head Of Household also increased by $600 to $19,400 in 2022.
TAX BENEFITS FOR MARRIED FILING JOINTLY:
To qualify for certain tax credits, married couples cannot File Separately and must file a Joint return. Some popular credits that couples who file Married Filing Jointly can receive include:
● Child and Dependent Care Tax Credit up to $2,100 of qualifying expenses.
● Earned Income Tax Credit up to $6,935 for a family with 3 or more kids
○ Note: Married couples without children CAN qualify, based on income.
MARRIED FILING SEPARATELY:
Married taxpayers who file separate tax returns receive fewer tax incentives. Filing separate tax returns causes you to be taxed at a higher Income Tax rate than if you filed jointly.
Some CREDIT & DEDUCTIONS affected by the Married Filing Separately status include:
● Earned income credit
● Child tax credit
○ (only half the Married Filing Jointly credit is available)
● Child and dependent care credit
○ (a partial credit may be possible if the spouses are living separately)
● Adoption credit
● All deductions and credits relating to education such as: American Opportunity,
Lifetime Learning, Student Loan Interest Deduction, and Tuition and Fees Deduction.
● Traditional IRA deduction phases out at a lower adjusted gross income (AGI) range
of $0-$10,000
○ If living together, and spouse has a qualified plan offered through an employer –
if living separately, the IRA deduction is treated the same as a Single filer.
WHEN WOULD SOMEONE MARRIED WANT TO FILE SEPARATELY?
● If one spouse’s tax bill is significant, then filing separately can serve as protection so
the other spouse's refund would not apply to what your spouse owes.
● If you’re enrolled in an income-based student loan repayment plan, filing separately
could reduce your monthly bill. Income-based repayment programs are generally
determined from adjusted gross income, or AGI.
● Couples can benefit from filing separately if there's a big disparity in their respective
incomes, and if the lower-paid spouse is eligible for substantial itemizable deductions.
● If a married couple’s joint income would be too high to qualify for the medical expense deduction, but filing MFS one spouse could qualify to deduct their medical expenses.
○Generally, you can deduct unreimbursed medical expenses — but only the
portion that exceeds 7.5% of your AGI.
■ Filing separately could make more of those expenses deductible!
● If you’re experiencing a separation or a pending divorce.
● You live in a “community property” state:
○ A state where any asset acquired during marriage is considered to be equally
owned by each spouse. Any income that either spouse makes during the
marriage is community income. There are exceptions to owning separately*
○ There are nine states – Arizona, California, Idaho, Louisiana, Nevada, New
Mexico, Texas, Washington and Wisconsin.
○ Alaska is an opt-in community property state that gives both parties the option
to make their property community property.
● If one spouse has not paid outstanding child support payments, filing separately
would prevent the IRS from taking the other’s portion of any refund.
● One of You Is SELF-EMPLOYED and hasn’t been making ESTIMATED PAYMENTS
○ Since taxes aren’t being taken out during the year, you’re generally expected to
make estimated quarterly payments (every three months) to cover the amount
of tax you owe.
○ If you/they haven’t been doing that or you underestimated what to set aside,
that can add to your joint tax liability or take a big bite out of any refund.
■ Splitting your taxes up may disqualify you from the Married credits, but it
could also minimize the amount of tax you’ll owe overall.
● You’ll have to do the math to know what’s best (unfortunately!)
IMPORTANT! ITEMIZING DEDUCTIONS WHEN FILING SEPARATELY:
If one or both of you has a substantial amount of deductions to claim and there’s a pretty sizable gap in what you earn, filing separate returns can get you both the full amount of tax benefits.
However, if one spouse decides to itemize deductions, the other spouse MUST do so as well, even if their itemized deductions are less than the standard deduction!
Example: if one spouse has itemized deductions of $30,000 and the other has only $3,300, the second spouse must claim that $3,300 rather than the larger standard deduction ($12,400).
This means that filing separately is a good idea from a tax-savings standpoint only when one spouse's deductions are large enough to make up for the second spouse's lost deduction amount.
So, Should we file our taxes Jointly or Separately?
The BEST way to find out if you should file jointly or separately with your spouse is to prepare the tax return both ways.
Double-check your calculations, then look at the net refund or balance due from each method.
You can work with a TAX PROFESSIONAL to assess the best result for your income and goals!
It can be confusing, but that's why we're here!
Book a FREE 15-Min call with us TODAY!