Single v MFS v MFJ v HoH
Reasons to file jointly.
It’s usually the most efficient way to file.
Better tax breaks – especially if one person earns and lot, an one earns a little.
Less work to do
It’s cheaper, we don’t charge for to prepare a joint return
If you’re married to a non-US person, you can use their income to make your eligible for the Child Tax Credit Refund.
Reaons to file separately…
To avoid tax due, fines or penalties that are being added due to your spouse’s situation
Separation / claiming the Child Tax Credit Refund
Reduce student loan repayments in case your spouse has higher income, it will increase your monthly repayment.
MFS v HoH
What about if you’re married to a non-American, and you have dependents?
Head of household gives you much better standard deductions
$12,550 v $18,800
Either filing status will give you eligibility for the Child Tax Credit Refund.
Should I add my non-US spouse to my tax return?
Only if you have a very good reason to do so, such as claiming the ACTC.
Filing Jointly vs Separately
When it comes to filing a tax return, for married couples, they have a decision to make. Do they file a tax return singly or jointly?
Most couples automatically file jointly. This is normally to cut down the amount of work they need to do to get the tax return exactly right. Filing jointly means there aren’t two sets of forms to fill out. While that’s the best option for some, with a busy work and family life, there may be certain situations where it would be more financially beneficial to file separately.
Should You and Your Spouse File Taxes Jointly or Separately?
How to Choose Your Tax Filing Status
Working out how much you’re due to pay on your tax return can be difficult. Running the numbers to determine whether you’ll benefit more from filing jointly or singly can also be confusing. You will need to consider things like stimulus payments and child tax credit when adding up your taxable income.
If you are struggling to see which would be most beneficial to you, you can ask for assistance from a tax professional. They will be able to run your numbers both ways to see which one allows you to pay least tax. In some circumstances, you may even be due a tax refund by filing one way but not the other, so it’s really worth checking.
Reason to File Separately
Although filing jointly is the norm, there are certain situations where filing separately could work out better for you.
● Similar Income Contributions from Both Spouses
If both spouses are on a higher income and earn around the same amount of income each, there are certain situations where they can file within a lower tax bracket if they file separately. This allows them to pay slightly less tax based on certain credits that they receive for filing separately, which can lower their overall taxable income.
However couples on a lower income might experience the opposite effect and may have to pay more tax if they file separately, so it’s worth seeking professional help if you’re unsure on where your tax brackets stand.
● Medical Bill Payments
If one spouse has medical bills that exceed 7.5% of their adjusted gross income, you can claim these back using an itemized tax return. This will be beneficial if one spouse has a low income and has a large amount of medical bills, as it can mean that tax is deducted.
However, if the spouses filed jointly, it would be the whole of the joint income that would be considered, meaning that the 7.5% threshold would be much higher and more difficult to meet. If you jointly earn a total of $100,000 per year, then you’d have to have $7,500 of medical bills before you were able to claim a deduction, which is unlikely unless you have an ongoing medical condition. However, filing separately would mean that you’d only need to make $3,000 to claim the same deduction.
The trouble here is, that from a deductions perspective, from 2021, if one spouse itemizes their return, then the other one has to too. So it may not be beneficial to the spouse on higher income to do this if they aren’t likely to receive any deductions from doing so.
● Student Loan Repayment
Certain student loan repayment plans are based on the total taxable income. If it’s beneficial to file separately to reduce the total amount of tax due for an individual, it will also reduce the student loan payments per month.
It’s also essential to file separately if either spouse has defaulted on a student loan payment, (meaning the loan hasn’t received a payment for over 270 days). This is because filing jointly could cause any tax refund that you would have received to be rerouted to pay this debt. So, even if your spouse has no student loan, they may end up paying off yours anyway.
● Avoidance of Joint Tax Liability
Sadly, one of the most common reasons for spouses to file separately is due to one spouse not wanting to be held liable for the other spouse’s previous tax mistakes. If you file incorrectly and incur a fine, that information may be held on your record for future tax returns, which could result in more tax being paid to correct errors.
If one spouse already has a mark against their name for deliberately filing tax incorrectly, then the other spouse will not want to be held accountable for that. If fines need to be paid for an incorrect filing, then the IRS may take funds from any bank accounts or assets that are owned by the spouse, even if the fault wasn’t due to their error.
For this reason, it’s always worth getting the help of a tax professional to ensure that your tax return is exactly right before you submit it. If you file incorrectly, your spouse may suffer in the future and filing jointly may not be an option.
● Divorce or Separation
Couples going through a divorce or other legal separation will often file separately, even if they have filed jointly in the past. This is one of the first steps to separating assets and ensuring that neither is liable for the other’s tax. If you have previously filed jointly and begin to file separately under the same legal name, the IRS may require you to declare why you have changed this. However, separation is deemed as a justifiable reason.
The Benefits of Filing Jointly
● Lower Tax Rate
Typically, married couples will file jointly because it allows for a lower tax rate to be applied. Some tax benefits are also only available or are increased when you file as a couple.
● Increased Credit & Deductions
Certain tax breaks or credits can only be applied for if you file jointly. For example, the student loan interest deduction, American opportunity credit, the lifetime learning credit for mature students, and earned income tax credit.
Dependent care credit can also only be applied if you are filing jointly in most circumstances. This applies if you have dependent adults or children. However, if you are separated and share joint responsibility, you may still be able to claim this credit by filing singly but will receive 50% of the credit per person.
Adoption expenses can also only be claimed if you file jointly, unless you have adoption expenses claimed over a set period of time and you and your spouse have legally separated within this time. Again, if this is the case and you share joint responsibility for an adopted child, 50% of any credit gained will be divided between the two spouses.
On top of all this, there is a deduction offered by the IRS simply for filing jointly, which can tip the scales a little if you’re trying to work out which is best for you.
● Roth IRA Contributions
Making Roth IRA contributions to provide a secure future for married couples is easier if you file jointly. This is because the income threshold to be able to contribute is much higher as a couple than if you file separately.
You could contribute if you jointly earned less than $208,000 in the 2021 tax year, which will rise to $214,000 in the 2022 tax year. However, filing separately means that you’ll only be able to contribute if your earnings are below $10,000 each – so $20,000 in total per household, which is much less likely if one or both spouses are regularly employed.
How to Change Your Filing Status
Filing using a different status is easy. You may need to change your filing status if you have recently got married and wish to file jointly or if you are separating from a spouse and wish to file separately.
You simply need to alter your filing status on your tax return when you file it. This is easiest to do when filing online as your filing status will determine which sections of your tax return you need to fill in. This automated system guides you to help you avoid any error later on.
If you’d like to change the amount of tax you withhold at any time throughout the year due to an upcoming filing status change, then you can do so by submitting a W-4 form directly with your employer at any point throughout the year.
When Can I Begin to File Jointly?
If you get married, you may want to begin filing jointly as soon as possible in order to benefit from tax deductions. If you have been married, you will need to provide legal documentation to show this in order to change your filing status. Again, this is easiest to do online.
You will be able to file a joint tax return as long as you were married before the end of December of the year that you wish to file tax. For example, you will be able to file jointly for 2021 on your tax return in April 2022 as long as you were married before December 31 of 2021, even if you weren’t married for the whole of that year.
How to File Your Tax Return
Filing online is the preferred method by the IRS and is the easiest way to get any tax refunds back faster and change your tax filing status. You should file online before April 18 2022 if you’re filing for the 2021 tax year.
If you’re unsure of the best way to file for your situation, it’s worth seeking professional support to ensure you file in the most beneficial way for you.