What Credits Do You Lose Filing MFS?

Choosing a tax filing status can significantly impact the credits and deductions you qualify for. Married couples can file jointly or separately, but filing separately often limits access to key tax credits. Many valuable credits are reduced or completely unavailable under the Married Filing Separately (MFS) status, potentially leading to a higher tax bill. Understanding these limitations is essential before making a decision.

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a major benefit for low- to moderate-income workers but is entirely unavailable to MFS filers. This credit reduces tax liability and often results in a refund. Eligibility depends on income, filing status, and the number of qualifying children, with phase-out thresholds adjusting annually for inflation.

For 2024, the maximum EITC ranges from $632 for taxpayers with no children to $7,830 for those with three or more qualifying children. However, the IRS explicitly disqualifies MFS filers from claiming this credit under Internal Revenue Code 32(d). This rule prevents spouses from filing separately to artificially lower income to qualify for a larger credit.

Losing the EITC can also impact other tax benefits. Without it, adjusted gross income (AGI) may be higher, reducing eligibility for income-based deductions and credits. This can lead to a higher tax bill or a smaller refund, making it harder for lower-income households to cover essential expenses.

Child Tax Credit

The Child Tax Credit (CTC) provides up to $2,000 per qualifying child under 17, but MFS filers face restrictions. Only one parent can claim the credit, which can create financial challenges if custody is shared. Additionally, the income phase-out thresholds are lower for MFS filers than for those who file jointly, reducing or eliminating the credit for many.

To qualify, the child must have lived with the claiming parent for more than half the year and be listed as a dependent. In cases of divorce or separation, only the custodial parent can claim the credit unless the noncustodial parent has a signed Form 8332 releasing the exemption.

Filing separately also affects the refundable portion of the CTC, known as the Additional Child Tax Credit (ACTC). If the full $2,000 credit cannot offset tax liability, up to $1,600 per child can be refunded. However, MFS filers face stricter income limits, which can reduce or eliminate this benefit. The ACTC is only available if the taxpayer has at least $2,500 in earned income, which can be problematic for lower-income parents who file separately.

Dependent Care Credit

The Dependent Care Credit helps offset childcare or dependent care costs, but MFS filers are generally ineligible unless they meet specific exceptions. The credit covers a percentage of qualifying care expenses for a child under 13 or a dependent who is physically or mentally incapable of self-care. Eligible expenses include daycare, babysitters, and certain after-school programs.

The maximum allowable expenses are $3,000 for one dependent and $6,000 for two or more. The credit covers 20% to 35% of these expenses, depending on AGI, with a maximum credit of $1,050 for one dependent or $2,100 for multiple dependents.

An exception exists for MFS filers who are legally separated or live apart for more than half the year. In these cases, the spouse who claims the dependent and pays for care may still qualify. However, proving eligibility requires documentation, such as receipts and provider information, to substantiate the claim.

Education Credits

The American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) help offset higher education costs, but MFS filers are ineligible for both under Internal Revenue Code 25A(g)(6). Even if a taxpayer pays qualified tuition and fees for themselves, a spouse, or a dependent, they cannot claim these benefits.

The AOTC provides up to $2,500 per eligible student for the first four years of postsecondary education, with 40% of the credit refundable. The LLC offers up to $2,000 per tax return for tuition and fees related to undergraduate, graduate, and professional degree courses. Losing access to these credits significantly increases education costs for MFS filers.

Adoption Credit

The Adoption Credit helps offset adoption-related expenses, but MFS filers are generally ineligible unless they meet specific exceptions. The credit provides up to $16,810 per child in 2024 for qualified adoption expenses, but MFS filers are typically disqualified under Internal Revenue Code 23(e).

An exception allows MFS filers to claim the credit if they meet IRS criteria for being treated as unmarried. This typically applies when spouses have lived apart for more than half the year and maintain separate households. Even if an MFS filer qualifies, they face lower income phase-out thresholds. The credit begins to phase out for taxpayers with modified adjusted gross income (MAGI) above $252,150 and is eliminated at $292,150. Filing jointly is usually more beneficial for those seeking to claim this credit.

Retirement Savings Contribution Credit

The Retirement Savings Contribution Credit, or Saver’s Credit, encourages lower-income individuals to contribute to retirement accounts by providing a tax credit of up to $1,000 ($2,000 for joint filers). However, MFS filers face significantly lower income limits. For 2024, the credit is phased out entirely for MFS filers with an AGI above $21,750, while joint filers can qualify with an AGI up to $43,500.

The credit applies to contributions made to traditional or Roth IRAs, 401(k) plans, and other qualifying retirement accounts. The percentage of the contribution that qualifies depends on income, with rates of 50%, 20%, or 10%. Since MFS filers face the lowest income threshold, many who would otherwise qualify under a different status lose access to this benefit. Additionally, because the Saver’s Credit is nonrefundable, it can only reduce tax liability to zero and does not generate a refund. This makes it even less beneficial for MFS filers, who often face higher tax burdens due to the loss of other credits.