Filing Jointly Vs Separately (High Income)

[brian-perrigino]

Hi -- pretty sure I am doing this correctly but looking for confirmation.   If a husband and wife each have a high income (let's say 500k each as an example), then I do not think there's any difference in married filing separately vs married filing jointly for federal -- is that correct?  I was surprised to get the same answer when doing it both ways but then when I looked at the tables, that does seem to be the case.  (While it doesn't make a difference for Federal, It makes a difference in NY and its more advantageous to file separately)

[SweetieJean]

Please see this:

Should You and Your Spouse File Taxes Jointly or Separately? - TurboTax Tax Tips & Videos (intuit.co...

[Mike9241]

essentially correct but there are caveats. for MFS both must use either the standard deduction or itemize. certain credits are lost when MFS

since we can't see your returns there could be other things

[LeonardS]

No, generally when a couple file separately vs jointly the combined tax liability, federal and state, is higher filing separately vs than filing a joint return.  However, this general statement does not apply in all cases.  When comparing the two methods you were correct to include your NY state return for an accurate comparison.

Disadvantages of Married Filing Separately

(in addition to various amounts normally being half of MFJ amount)

Lost Credits

•Earned income credit.

•Credit for the elderly or the disabled.1

•Child and dependent care credit.2

•Adoption credit.2

Lost Education Benefits

•Education credits.

•Student loan interest deduction.

•Tuition and fees deduction.

•U.S. savings bond interest exclusion.

Standard Deduction

If one spouse itemizes deductions, the other must also itemize (that is, cannot claim the standard deduction).

Taxable Social Security

A greater percentage of social security benefits may be taxable.

IRAs

•Traditional IRA deduction and Roth IRA contributions phased out at $10,000 of modified AGI.1

•Spousal IRA rules do not apply.

Passive Losses

•Rental real estate loss allowance is limited to $12,500 per spouse ($0 if spouses lived together at any time during the year), with lower phase-out thresholds.

•One spouse’s passive income cannot be offset by the other spouse’s passive loss.

AMT Exemption

In addition to the exemption phasing out, some high-income taxpayers must add an amount back to AMTI.

Filing Requirement

Regardless of the age of the taxpayer, if gross income is at least $5, a tax return must be filed.

1 Unless spouses lived apart for the entire year.

2 Unless spouses lived apart for the last six months of the year.

[brian-perrigino]

Thanks all.  I should have been more specific in that both earners will take the standard deduction, no kids,  and live in New York City.  For NYC residents, there's a NYC education. credit (line 69a) that phases out after $500K.  So if both earners are under $500K, they each get the credit whereas combined they exceed $500K and do not get the credit thus the desire to file separately.   It amounts to about a $2,000 savings.

[RaifH]

Yes, you are correct. If both of you earn about the same amount and are in the same tax bracket and neither of you is eligible for any of the credits or impacted by any of the limitations that have already been listed, then you may see more of a benefit by filing separately because of the impact on your state return. 

[SweetieJean]

@brian-perrigino You asked several similar questions last year.

[brian-perrigino]

I asked some questions last year about filing status but not the question about whether the results would be exactly the same. I actually try to research my questions as best as I can before asking, but one of the reasons I use TurboTax is that I can ask questions when I am not sure or just want a quick confirmation.