Why Would a Married Couple File Separately?

Most married couples file taxes jointly to maximize benefits, but in some cases, filing separately is the better option. Factors like income levels, deductions, and financial obligations influence this decision.

Income-Based Considerations

Filing separately can reduce tax liability when one spouse earns significantly more than the other. The U.S. tax system’s progressive structure means higher earnings push taxpayers into higher brackets. Joint filing combines income, potentially increasing the overall tax rate. Filing separately allows the lower-earning spouse to remain in a lower bracket, which may lower the household’s total tax burden.

Deductions and credits also play a role. Some tax benefits phase out at higher income levels, and joint filing can push a couple above those thresholds. For example, deductions for miscellaneous itemized expenses are based on a percentage of adjusted gross income (AGI). A higher AGI makes it harder to qualify. Filing separately lets each spouse claim deductions based on individual income, potentially increasing the amount deductible.

Medical Expense Thresholds

Medical costs can be a financial burden, and tax deductions help offset expenses. The IRS allows taxpayers to deduct unreimbursed medical expenses exceeding 7.5% of AGI. A joint return sets this threshold based on combined income, making it harder to surpass. Filing separately lowers the threshold for each spouse, increasing potential deductions.

For example, a couple with a combined AGI of $150,000 can only deduct medical expenses exceeding $11,250. If one spouse earns $50,000, their threshold drops to $3,750. If that spouse has $10,000 in medical expenses, filing separately allows a $6,250 deduction instead of $3,750 on a joint return. This strategy benefits households with high medical bills from chronic conditions, surgeries, or ongoing treatments.

Student Loan Factors

Filing separately can lower student loan payments for borrowers on income-driven repayment (IDR) plans. Plans like Pay As You Earn (PAYE) and Income-Based Repayment (IBR) calculate payments as a percentage of discretionary income. Joint filing considers both spouses’ earnings, often leading to higher payments. Filing separately bases payments on one spouse’s income alone, potentially reducing the monthly amount.

This is useful when one spouse has significant student loan debt and the other earns substantially more. For example, a borrower earning $40,000 with a spouse making $100,000 would see their IDR payment increase under joint filing. Filing separately keeps the calculation based on the $40,000 income, making repayment more manageable. However, this strategy comes with trade-offs, such as losing the student loan interest deduction, which is only available to joint filers.

State Tax Conflicts

State tax laws can influence whether filing separately is beneficial. Some states require married couples to use the same filing status as their federal return, while others allow separate state filings. This flexibility helps when one spouse resides or works in a state with lower tax rates or better deductions, as joint filing might push the couple into a higher bracket.

Community property states like California, Texas, and Arizona complicate matters. In these states, income earned during marriage is typically split equally between spouses for tax purposes, even if only one spouse earns it. This can negate the benefits of filing separately. In non-community property states, separate filings allow each spouse to report only their own income, which can reduce taxable amounts if one spouse has lower earnings or higher deductions.

Prior Obligations

Filing separately can protect a spouse’s tax refund when the other has outstanding debts subject to government collection. The IRS can withhold refunds to cover unpaid federal student loans, child support, or past-due taxes. A joint return puts both spouses’ refunds at risk. Filing separately ensures the spouse without debt keeps their refund.

While the injured spouse allocation can sometimes recover part of a seized refund, the process involves paperwork and delays. If one spouse has recurring financial obligations, filing separately each year may be the more straightforward approach. This is especially relevant for those with ongoing child support payments or tax debts that will take years to resolve.

Separate Business Liabilities

When one spouse owns a business, filing separately can protect the other from financial or legal risks. Business owners face potential liabilities such as lawsuits, tax audits, or unpaid debts. A joint tax return combines both spouses’ financial information, which can complicate matters if the IRS audits the return or the business incurs penalties. Filing separately ensures only the business owner is responsible for these risks.

This is particularly relevant for sole proprietors and partners in pass-through entities, where business income flows directly onto personal tax returns. If a business is struggling with unpaid taxes or under IRS scrutiny, filing separately prevents the non-involved spouse from being held accountable. Additionally, if the business owner takes aggressive deductions or engages in complex tax strategies, the other spouse may prefer to file separately to avoid potential legal entanglements.