When couples talk about things they need to do after the wedding, they usually mean packing for the honeymoon or opening gifts. But one of the most important things couples need to talk about after (or better yet, before) the wedding is their tax filing status.
A person’s filing status determines their filing requirements, tax bracket, standard deduction, and eligibility for tax benefits such as credits and deductions. Choosing the right filing status allows you to minimize your tax bill and maximize your refund.
Married couples can choose between filing a joint tax return or two separate returns. Over 95% of couples file taxes jointly, but that does not automatically mean that it is the best option for you.
Here is a quick guide to tax filing for married couples:
Married Filing Jointly
The U.S. tax system offers many tax breaks to married couples. Filing a joint tax return can translate to thousands of dollars in savings.
- Benefits of filing a joint return
For the tax year 2021, married couples filing jointly are taxed 10% on their first $19,900 of taxable income. Meanwhile, for couples who choose to file separate returns, the 10% rate only applies to the first $9,950 of taxable income. After that, the tax rates increase in proportion to the income.
Joint filers also enjoy a bigger standard deduction than other filing statuses. For the tax year 2021, the standard deduction for married couples filing jointly is $25,100. Married couples who filed separate returns receive the same standard deduction as single filers: $12,550.
- Tax credits for joint filers
Married couples who file a joint return can also qualify for many tax credits, including:
- Earned Income Tax Credit: A tax subsidy for low-income and middle-income working families. Depending on their income and the number of qualifying children, a taxpayer can claim up to $6,728 in credit.
- Education Credits: The American Opportunity Tax Credit and the Lifetime Learning Credit help with college or graduate school tuition and fees by reducing the amount of tax owed on your tax return.
- Adoption Credit and Assistance Programs: Joint filers can claim a tax credit for qualified adoption expenses up to $14,300 per child (for the tax year 2020).
- Child and Dependent Care Credit: This nonrefundable tax credit is available to taxpayers who pay for childcare while they work or look for work.
- When to file a joint return
You can file a joint return if you are legally married on December 31, the last day of the tax year. Couples don’t need to be married the entire year to use this filing status.
Married Filing Separately
While filing a joint return provides many tax benefits to married couples, there are certain situations where two separate returns can be more advantageous.
- Separation or divorce
A joint return requires consent from both spouses to be valid. Couples who are separated or in the middle of a divorce can opt to file separate returns if mutual consent cannot be secured.
- Student loans
Separate returns can help minimize the financial fallout if one of the spouses defaults on their student loans. If the couple filed a joint return, their tax refund would be directed towards paying off debt. Filing separately ensures that one of them will still receive a tax refund.
Borrowers on an income-driven repayment plan can also consider filing a separate return. Since the borrower’s monthly payments are based on their monthly income, a separate filing can result in significantly lower repayments.
- Liability issues
One of the drawbacks of a joint return is each spouse incurs personal liability for the other spouse’s income taxes. If one spouse suspects the other of a possible tax crime, filing a separate return shields them from any potential liability that can arise from the other spouse’s criminal activities.
Your Filing Status Can Affect Your Stimulus Checks
The maximum stimulus amount available to qualifying taxpayers is independent of their marital status. Single filers and married couples filing separately can receive up to $1,200 per person, while joint filers can receive up to $2,400.
However, your filing status can determine whether or not you are able to receive the full amount you qualified for. In most cases, this isn’t an issue if both spouses have roughly the same income and their combined income does not exceed the threshold. But if your spouse is a high earner and your combined income exceeds the ceiling, your stimulus check may be reduced or denied altogether, even if your individual income falls within the threshold.
How To Choose The Right Filing Status
Filing a tax return is already complicated enough without having to think about the benefits and drawbacks of each filing status. To determine whether you should file jointly or separately, it helps to have professional advice.
The tax experts at TFX have helped American taxpayers solve their tax issues for more than 25 years. Our seasoned team can help you determine the best filing status that will minimize your tax liability and maximize your refund. You can trust us to provide expert solutions tailored to your situation.
Veronica Rhodes from TFX
TFX is a women-owned tax firm that offers all U.S. tax services — for both American citizens and non-citizens with U.S. tax filing requirements. From straightforward expat tax preparation to complex cases involving multiple factors — we have handled it all for over 25 years.