Filing taxes under the status of “married filing separately” for tax year 2020 — i.e., the return you’re filing in 2021 — is largely unchanged from the 2019 tax year. While there are relatively few couples who will experience significant benefits from filing separately, there are certain circumstances where it makes sense.
Even if you’ve been filing jointly for decades, that doesn’t mean there won’t be the occasional year where you and your spouse would benefit from filing separately. If the IRS hands down year-to-year changes that affect your taxes, switching your filing status — even if it’s temporary — could result in a bigger refund. That’s why taking the time to understand the benefits of filing separately is well worth it.
So, here’s a dive into everything that goes into the decision to check the box for “married, filing separately” and knowing when it might be right for you:
- What Does It Mean To Be Married Filing Separately?
- Eligibility Requirements for Married Filing Separately
- When Is It Better To Be Married Filing Jointly vs. Separately?
- Evaluate Your Situation When Choosing How To File
To be married and filing separately simply means that you and your spouse file individual returns rather than one shared return. In specific circumstances, certain couples could end up owing less in taxes with separate filings.
However, for the vast majority of couples, filing jointly will ultimately net the most benefits. Of the 150 million or so tax returns filed in 2017, just over 3 million were from married couples filing separately, or about 1 in 50 — and it’s not hard to figure out why. There’s an array of tax breaks and credits available to joint filers that those filing separately can’t claim.
It’s perfectly legal for anyone who is married to file separately from their spouse, even if it only makes financial sense for a select few. As long as you’re legally married in the eyes of the IRS, you can choose to file separately.
So, what does the IRS classify as being legally married for the tax year? The answer is pretty simple. It comes down to one day: Dec. 31, 2020.
For tax purposes, your marital status on the final day of the year is your status for the entire year. So, if you opted for that romantic New Year’s Eve wedding, you’ll have to file as a married couple for the whole tax year. However, if you managed to finalize that divorce in the final week of the year, you’ll be able to file as single.
As you age, your financial circumstances are likely to change, so it’s worth understanding the situations when you might want to file separately. Take a look at what you could gain — and what you’re giving up — by choosing to file separately.
Benefits of Married Filing Separately
Here’s what you stand to gain by filing separately from your spouse:
- You might be able to lower your tax burden. If combining your income with your spouse’s pushes you into a higher tax bracket, filing separately can ultimately reduce your tax burden. It’s unlikely — but always worth checking.
- You can still take the child tax credit. For the most part, couples with children are much less likely to find any benefit from filing separately. However, one way in which you’re not penalized is the child tax credit, which is worth up to $2,000. You can claim this credit for each qualifying child who is age 17 or younger — but not for both parents. You can’t double up your credit by claiming your kids on both forms, so you’ll have to choose one return and include your children there.
- There might be more expenses you can deduct by filing separately. In some cases, there are deductions from your adjusted gross income that you can make only if they exceed a certain percentage of your income. Out-of-pocket medical expenses, for instance, are deductible only after they exceed 7.5% of your income. So, if one spouse has medical expenses that total more than 7.5% of their income but wouldn’t clear that threshold if the couple’s earnings were combined, filing separately could make for considerable tax savings.
- You can protect your finances. Not every marriage is positive, and many people might not feel comfortable tying themselves financially to their spouse. Maybe you suspect your spouse is conducting shady business dealings, hiding assets, underreporting income or not paying child support, and you don’t want a portion of your income seized to cover that debt. Regardless of why, if you’re just more comfortable with filing separately, you can do so.
Drawbacks to Married Filing Separately
There’s a lot that you’re potentially giving up by filing separately:
- You can’t claim the earned income tax credit. The EITC is a considerable benefit for working families. You likely won’t qualify if you’re earning a high income, but some families can claim a benefit of up to $6,600. The details are fairly complex, but fortunately the IRS provides an EITC assistant to help walk you through it.
- You can’t take advantage of the lifetime learning credit: This is a credit toward tuition and education costs even if you aren’t working toward a degree. You can claim up to 20% of $10,000 in expenses, or up to $2,000 — but not if you’re married and filing separately.
- You won’t be able to claim the adoption tax credit. Filing separately means that the adoption tax credit — which could be worth as much as $13,840 per eligible child — isn’t available to you.
- You can’t use the American opportunity tax credit. This credit is available to anyone pursuing a degree, but you aren’t eligible to claim it if you’re married and filing separately.
- You likely won’t be able to make contributions to an individual retirement account or Roth IRA. If you’re married and filing separately, any income over $10,000 disqualifies you from being able to use these tax-advantaged accounts. Even if your income is under $10,000, you’re only allowed to contribute a reduced amount.
- If one of you itemizes on your tax return, the other must also do so. To prevent couples from loading up all of their deductions with one person, the standard deduction falls to $0 if the other person itemizes. So, while you can still claim the standard deduction when you file separately, it’s only really an option when your partner does the same.
The band of taxpayers who will reap financial benefits from filing separately is a narrow one. However, plenty of couples might face specific circumstances where filing separate tax returns will save them money. For others, keeping their finances untangled is simply the safer route to take.
Learn More: 15 Commonly Missed Tax Deductions
Either way, you should check every year whether you’ll pay lower taxes — or receive more money — by filing separately. Even if you’ve been filing jointly for decades, you might find that there are certain years where things add up a little differently.
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