Should You and Your Spouse File Taxes Jointly or Separately?

The 2021 tax season is now here and Americans are excited to maximize their refund. Last year, the average tax refund was nearly $3,000.

Due to the Covid-19 pandemic, Congress passed additional tax relief legislation to help American families. There were major changes in 2021 including popular provisions like the Child Tax Credit (CTC).

Many married couples face a predicament about whether to file separately or jointly. Read on to learn whether you and your spouse should file taxes jointly. Explore the pros and cons so that you can make an informed decision about filing taxes.

What Do the Tax Brackets Look Like?

When debating to file taxes separately or jointly, the first question to answer is what are the different tax brackets? The Internal Revenue Service (IRS) publishes tax brackets for each filing category before returns are accepted.

This way, tax filers have adequate time to prepare and have insight on how much to withhold from their pay. Continue reading for a breakout of the tax brackets for married vs single:

Single and Married Filing Separately

For the most part, the tax brackets for single and married filing separately are the same. There is only one difference in the tax brackets between the two filing categories.

Those earning $10,275 or less pay 10% taxes in both filing categories. The same is true for the 24%, 32%, and 35% tax brackets. The income thresholds for these brackets are $89,075, $170,050, and $215,950 respectively.

The only observed difference is in the 37% tax bracket. Single filers who earn $539,900 or more pay this tax rate.

For married filing separately, the income figure drops down to $323,925. This is often referred to as the marriage penalty. A person earning $400,000 pays higher taxes if married than if he or she remained single.

Married Filing Jointly

Now, it is time to discuss the tax brackets for married filing jointly. The relationship between married filing jointly vs. separately is simple. Typically, the income thresholds double from the single or married filing separately category.

Of note, the income threshold for single filers in the 37% tax bracket does not double. In this case, it only doubles from the married filing separately figure.

Bottom Line

At first glance, there is not much difference in the tax brackets for married filing separately vs. jointly. The income levels are simply doubled for joint filers.

There may be unique situations where a couple wants to ensure that one spouse’s income falls below a certain threshold. Perhaps they claim all the deductions and tax credits to achieve a desired rate. However, these cases are rare and require a tax professional to crunch the numbers.

What Is the Standard Deduction?

The standard deduction is a mechanism used in tax filings to reduce your taxable income. While many people itemize their deductions, the vast majority claim a standard deduction.

The Trump Administration’s Tax Cuts and Jobs Act doubled the standard deduction to increase its popularity and usage. In fact, 90% of Americans now claim the standard deduction on their tax returns.

The standard deduction varies depending on your filing status. For married couples filing separately, the standard deduction is $12,950. This figure doubles to $25,900 for those who are married filing jointly.

Again, the bottom line is that married filing jointly does not benefit you for the standard deduction. Each spouse is going to receive the same share of the standard deduction regardless of your filing category.

What about Tax Deductions and Credits?

Tax deductions and credits is where married couples filing jointly finally get ahead. The IRS does not allow married couples filing separately to claim a number of popular deductions and credits.

The Earned Income Tax Credit (EITC) is one of the big losses for separate filers. Married couples filing separately are not allowed to claim EITC.

Students and recently-graduated filers are also at a disadvantage if they do not file jointly. Married couples filing separately are not permitted to claim the student loan interest deduction.

They also lose access to the American Opportunity Credit and the Lifetime Learning Credit. These are two popular programs designed to help Americans pay for their education expenses. Barring a few exceptions, separate filers cannot claim adoption or dependent care tax assistance as well.

An additional benefit for married couples filing jointly is Roth IRA contributions. Joint filers can contribute to a Roth IRA up to $214,000.

This is not true for single filers. Only filers with an income less than $10,000 are able to contribute to a Roth IRA.

Are There Cases Where Filing Separately Is Better?

There are instances in which filing separately maximizes your total tax refund. One common situation involves deducting medical bills. The IRS allows tax filers to deduct medical bills that surpass 7.5% of your adjusted gross income.

If you file jointly, this 7.5% threshold is more difficult to reach. This is especially true if your spouse was in good health and did not see a doctor often. Another contributing factor is if your spouse has significant income and makes it harder to reach 7.5% of AGI.

Student loans are another reason why you may not file jointly. Ironically enough, we listed losing the student loan interest deduction as fallout of filing separately.

However, many Americans are on income-based repayment plans. If you add your spouse’s income to your tax status, it may increase your monthly student loan payment.

There are a few other reasons why a spouse may not want to file jointly. For instance, one example is if their spouse has made tax errors in the past and owes back taxes. The other spouse may not want to expose their assets to seizure.