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Level 2

Married filing separately changed

Last year we filed as Married Filing Jointly. We underpaid taxes during the year, so we have been paying estimated taxes (jointly) throughout the year. This year, we have very disparate incomes and medical expenses so we are filing as Married Filing Separately. How should we each report the estimated taxes paid during the year? Proportionately based on our best estimate of how much of the AGI was for each of us? Simple numbers for an example: let's say we paid $10,000 total in estimated taxes during the year, and in 2019, we had a combined AGI of $100,000. Of the $100,000, $25,000 was my husband's income and $75,000 (75%) was my income. So in completing 2020 taxes, I would show $7,500 in estimated taxes paid and he will show $2,500. Is this conceptually correct?

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Level 15

Married filing separately changed

To avoid one or the other tax returns having an underpayment penalty, it might be necessary to split the estimated tax payments between the two separate tax returns.  When filing separately, each separate return is allocated a portion of the previous year's tax liability in proportions that would be the same as what the proportions would have been if the previous year's taxes has been filed separately.  For example if when filed separately one spouse would have had twice tax liability of the other, the safe-harbor for the spouse with twice the tax liability would be determined by 2/3 of the previous year's tax liability and the safe-harbor for the other spouse would be determined by 1/3 of the previous year's tax liability (the same 2:1 ratio).  More details are in IRS Pub 505.

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6 Replies
Level 2

Married filing separately changed

I'm rethinking my assumption. I suppose that to get it right I would really need to redo our 2019 tax return as though we were married filing separately for that year and determine how much of the underpayment was attributable to each of us. More complex than just proportionate share of income because it's also share of deductions and credits etc. More accurate assumption?

Level 15

Married filing separately changed

First let me say that married filing separately is usually the worst way to file so please use the downloaded program so that you can use the married filing joint slash married filing separate breakout so you can see how it is each way before you file and regret it. remember if one person itemizes the other person must itemize even if they have nothing to itemize. also there are other things that are affected by the married filing separately filing status such as credits so be very sure you want to file that way before you do file that way.

 

Next, how to split the estimated payments. Easy split them any way you want. However if you want to avoid an IRS letter later on then take a look at whose social security number those estimates were paid under. Usually it's the primary taxpayers social security number. For simplicity's sake and not to confuse the IRS, all the estimates should go on that person's tax return. That person should file first and get their refund so they that you have money to pay the balance due on the other person's return. 

Level 15

Married filing separately changed

To avoid one or the other tax returns having an underpayment penalty, it might be necessary to split the estimated tax payments between the two separate tax returns.  When filing separately, each separate return is allocated a portion of the previous year's tax liability in proportions that would be the same as what the proportions would have been if the previous year's taxes has been filed separately.  For example if when filed separately one spouse would have had twice tax liability of the other, the safe-harbor for the spouse with twice the tax liability would be determined by 2/3 of the previous year's tax liability and the safe-harbor for the other spouse would be determined by 1/3 of the previous year's tax liability (the same 2:1 ratio).  More details are in IRS Pub 505.

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Level 2

Married filing separately changed

Thank you. That affirms my second post thoughts. A little more work, but much more rational to defend should that be necessary.

Level 15

Married filing separately changed

Just to be clear, you can split the estimated tax payments in whatever way minimizes or eliminates any underpayment penalty; you would split each payment separately (not necessarily the same way for each) since underpayment penalties are calculated on a quarterly basis.  What I described in my previous reply is how the previous year's tax separate tax liabilities must be determined for the purpose of the safe-harbor of 100% (or 110%) of the previous year's tax liability.

Level 2

Married filing separately changed

Very helpful, thank you.

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