At tax time, you have one big decision to make before you can even get started: how you’ll file. If you’re married, your two choices are married filing jointly or married filing separately. You cannot claim a spouse as a dependent. There may be personal reasons for filing separately – some couples might, for example, prefer to keep their finances separate. However, filing separately could cost you more, especially if you have children or plan to go back to school.
Filing jointly with a spouse could provide certain tax benefits, particularly in situations where a couple also has children or one spouse is planning on returning to school.
Tax Bracket Considerations
Your tax rate will be the first area where you’ll notice a difference. The average American falls in the $50,000 salary range, so if you’re both making the average, you’ll separately fall in the 22 percent tax bracket. That means you’ll each be taxed $4,453.50, plus 22 percent of the amount of $38,700. On a $50,000 salary, that’s $11,300 each subject to the 22 percent tax. Separately, you’ll pay $2,260 plus $4,453.50 for a total of $6,713.50. When doubled, that’s $13,427 in taxes that will come out of your household earnings.
Let’s take the same tax bracket under a married filing jointly situation. Two people making $50,000 each will fall in the 24 percent tax bracket. That means you’ll be taxed a combined $14,089.50 plus 24 percent on the amount over $82,500, so $17,500 is subject to 24 percent tax if you’re making $100,000 together. That’s $4,200 plus $14,089.50 for a total of $18,289.50 that you will pay in taxes during the tax year in question. Although in this case, the couple would be better off filing separately, it’s important to crunch your own unique numbers to see which option is better for you.
There are several tax credits only available to married couples filing jointly. For parents, that includes the Earned Income Tax Credit, which allows you a credit of up to $6,431, depending how many children you have. Even with no children, you may be subject to a small credit. However, there are income phaseouts, so it’s important to check the IRS table to determine how much this credit will save you. Couples start seeing a credit phaseout once their adjusted gross income reaches $24,350.
Filing separately also means you won’t be able to enjoy The American Opportunity Credit or The Lifetime Learning Credit, which help pay for college tuition. Only those who file as single or married filing jointly can take advantage of these credits. The American Opportunity Credit offers a credit for 100 percent of the first $2,000 of qualifying education costs, as well as 25 percent of the next $2,000. The Lifetime Learning Credit offers 20 percent of qualifying expenses per year, with a maximum expense of $10,000.
The standard deduction is one area where you won’t see a difference filing separately as opposed to together. The standard deduction is now $12,000 per person whether you’re single or married filing separately. It doubles to $24,000 if you file together. However, if you have enough itemized deductions to exceed the standard, it might be worth crunching the numbers both ways to see if it saves you money to file jointly.
If you’re over the age of 65, you’ll see an additional credit. Those who are elderly or blind can add $1,300 to that standard deduction for a total of $13,300. Filing jointly will double this if you’re both over the age of 65 or blind, so it won’t make a difference if you file separately or together to take advantage of this credit.
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Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.