The Internal Revenue Service is much more concerned with high-income taxpayers claiming their incomes than with those on the lower end of the earning spectrum doing so. However, that doesn't mean you don't have to report what you earn above certain limits. If you’re filing a joint return, the question is not how little income your spouse earned, but how much you and your wife earned collectively.
If you and your wife earned more than $18,700 as of the time of publication, the IRS says you must file and claim your incomes. If your wife had any income at all that puts you over this amount, you must include it if you file a joint return. If you don’t want to include her income, your only other option is to file a married separate return, but this would cause you to lose many tax advantages. Because you’re married, the IRS doesn’t permit you to file a single return so you can report only your own earnings.
Your wife’s limited income can result in a tax break to you if you file jointly and claim it. Filing jointly allows you to claim personal exemptions for each of you. If the exemption is more than her earnings, you’ll come out ahead. Personal exemptions are worth $3,700 in the 2011 tax year. For example, if you earned $40,000 and your wife earned $2,000, your total joint income is $42,000. If you don’t claim her income and her exemption, your taxable income is $36,300, or $40,000 minus your own exemption. If you do claim her income and her exemption, your taxable income drops to $34,600, or $42,000 less two exemptions totaling $7,400.
If your wife’s employer withheld any income tax from her paychecks, you can’t receive a refund on any of that unless she claims her income, either on your joint return or on a separate married return. Even if she earned less than $3,650, which would not require her to file a return, she can't claim her refund without filing one way or the other.
Effect on Deductions and Credits
One potential drawback to including your wife’s income on your joint return is its effect on your combined adjusted gross income. Some deductions must total a percentage of your AGI before you can claim them, such as medical costs. You can only deduct these costs after they exceed 7.5 percent of your AGI. If your wife’s income is very limited, however, this might not have much of an effect. For example, if her income bumps your combined AGI up by $2,000, you’d only need an additional $150 in medical expenses before you could take deductions for the remainder. If you file separate married returns, however, the tax blow could be much worse. For example, you’d lose the right to claim the earned income tax credit if your income is low enough that you would otherwise qualify. This credit can amount to more than $5,000 if you have two children, and it’s not available to those filing separate married returns.
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.