Should You Be Filing Taxes Jointly or Separately?

I’m often asked by clients if it’s better for them to be filing their tax returns jointly or separately. Let’s take a few minutes to review your options in this regard, and highlight the pros and cons of each.

First of all, you may not even realize that you have a choice in the matter. In fact, as long as you are married as of December 31 of the current year, not only can you choose to file jointly (‘Married Filing Jointly’ or MFJ) or separately (‘Married Filing Separately’ or MFS), but you actually must choose one of these options. Once you’re legally married – even if you got married on 12/31, you are no longer allowed to file using the ‘Single’ status for that year (and the opposite is also true – if you get legally separated or divorced, even on 12/31 – you can no longer file MFJ or MFS for that year – you must go back to using either the Single or Head of Household status). 

Furthermore – and this is quite surprising to many people – you can actually choose to switch back and forth between filing MFJ or MFS as often as you like. For example, you could file MFJ for 2024, MFS for 2025, and MFJ again in 2026. By no means is this a ‘red flag’ for an audit or anything of the sort – it’s 100% your right, and if you benefit more one year in one status and another year by filing a different status, then you should absolutely do that! In fact, a recent example of this was during the COVID-19 pandemic with the stimulus payments and increased child tax credits, in which millions of high-earning taxpayers switched to filing MFS for 2020 and/or 2021 in order to qualify for these payments and credits, which they would not have qualified for by filing MFJ.

Now, generally speaking, most married couples do choose to file MFJ, as that tends to produce the most favorable tax outcome. The reason for this is that when you file MFJ, you get double the standard deduction, more favorable tax brackets (particularly for higher earners), and a handful of important deductions and credits are available to you that are lost when filing separately. For example, when filing MFS, you lose half of the child tax credit, most of the child and dependent care credit, all tuition/education related credits and deductions, and anybody earning more than just $10,000 can no longer deduct IRA contributions! Ouch!

Assuming no other factors in the equation, if two spouses are both working and have no other sources of income or deductions, then there won’t be any difference filing MFJ vs MFS. However, filing MFJ can be especially beneficial when only one of the spouses is generating income. For example, let’s take a husband and wife that both work and each earn $100,000 in W-2 earnings. If they file MFS, they both have $100,000 of earnings and they both receive a standard deduction of $14,600 for 2024, which brings each of their taxable income down to $85,400. They each would owe Federal income tax of $13,841. If this couple would instead file Jointly, they would have combined earnings of $200,000, would receive a standard deduction of $29,200, which brings their taxable income to $170,800.  Their Federal income tax bill would be $27,682, which is exactly the same as combining their two tax bills together when filing Separately. However, if in the same scenario only one of the spouses was working, and that individual earned $200,000, if they filed Separately that individual would be left with a Federal tax bill of $37,539. Compare that to filing Jointly, where they would owe $27,682. Filing Jointly saves them roughly $10,000, because in this case there is essentially the same amount of total income, but now the advantage of getting double the standard deduction. In other words, by filing Jointly, the additional spouse ‘brings’ to the equation additional deductions without any additional income. 

I’m sure many of you are wondering when it does make sense to file MFS. The most common reasons for filing MFS have to do with either divorce or concern about tax liabilities and/or tax evasion. For example, if one spouse is concerned that the other is committing tax fraud or evasion, they may want to file separately so that if the IRS comes after the other spouse, the innocent spouse and their assets won’t be dragged into the mess. Alternatively, if a couple knows they are about to get divorced or separated, they may want or need to start separating their finances as much as possible ahead of the divorce, and filing separate tax returns is one way to do that. The other time it can make sense to file separately is for couples with significant student loans. If one spouse has a significantly higher income than the other, and the lower-earning spouse has the student loans, they may choose to file separately so that their income-based student loan payment plan will be less expensive. 

Finally, I’ll end with a slightly more ‘exotic’ example of tax planning around filing jointly or separately.  Just a few months ago I had a new client that was a recently married couple. The wife was a US citizen, while the husband was a non US citizen and lived overseas. The husband was in the process of obtaining a green card and moving to the US, but for 2023 – when they were legally married in the US – he lived abroad. Since they were legally married, they needed to choose between filing MFJ or MFS (yes, even a non-US citizen can file jointly with a US citizen spouse). He did not have any significant income in the foreign country. She had W-2 earnings from her US job. The IRS allows for a non-US citizen to elect to file jointly with a US-citizen spouse. However, if they do so, that non-US citizen is required to report to the IRS and pay tax on all of their foreign earnings, even if they never stepped foot in the US! For this reason, when a US citizen is married to a non-US citizen, typically they will file MFS, so the non-US citizen avoids having to report to the IRS all of their earnings. However, in this case, the non-US citizen spouse had no significant income in the foreign country. By electing to file jointly, they essentially doubled their standard deduction without bringing any real income into the equation. The result was that the wife saved around $5,000 in taxes by filing jointly compared to what she would have had to pay by filing separately!

So there you have it – a quick breakdown of filing MFJ or MFS. Again, for most married taxpayers, filing jointly will likely be the best choice. But clearly there are circumstances where filing separately can make sense. Be sure your tax advisor is aware of your circumstances and will take both options into account.

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