Married Filing Separately (MFS) removes eligibility for a number of credits, deductions and benefits provided by Married Filing Joint (MFJ) filing status.
MFS filing status potentially results in the following situations:
- Higher tax liability because of a lower standard deduction for that status. Each spouse’s income will be taxed at the Single rate.
- Itemizing deductions can be potential problems. If one spouse itemizes deductions, the other spouse is required to itemize deductions even if that spouse has no deductions. This situation erases any standard deduction potentially increasing tax liability.
- MFS filing status cannot deduct student loan interest and education deductions.
- The Child and Dependent Care deduction may be eliminated.
- Typically, you will lose eligibility for the Earned Income Credit.
- The Retirement Savings Contributions Credit will be reduced to have the benefit of filing MFJ.
- MFS filing status can potentially reduce or eliminate eligibility for the Child Tax Credit.
- Retirement Contributions may be limited under the MFS filing status.
The MFS filing status affects other credits and deductions as well.
The taxpayers will have to complete their own cost benefit analysis to determine which option offers the most beneficial financial outcome. You will have to estimate your tax liability and compare that to the benefits offered by the Income-Driven Repayment (IDR) program for lower the student loan payment. In other words, which option provides the greater benefit at the end of the year.
