Married but separated and I give my spouse half my income

[donutheist]

Hi,

My wife and I have separated amicably. I direct deposit half of each paycheck into her account. We are filing separately, but I don't see a way to enter the money I have given her over the past year and my tax bill is going to be huge if I can't. Is there a way to do that the money I give her each year is treated as "alimony"?

[VolvoGirl]

If you are not divorced you can still file a Joint return which should be better than MFS.  

Many people think they come out better when filing Married Filing Separate but they are probably doing it wrong.  If one person itemizes deductions on Schedule A then the other one must itemize too, even if it's less than the standard deduction, even if it is ZERO!  (Business expenses are not itemized deductions.  Business goes on Schedule C not A.)

And there are several credits you can't take when filing separately, like the

EITC Earned Income Tax Credit

Child Care Credit

Educational Deductions and Credits

And contributions to IRA and ROTH IRA are limited when you file MFS.

Also if you file Married Filing Separately up to 85`% of your Social Security becomes taxable right away even with zero other income.

See …….

https://ttlc.intuit.com/community/married/help/is-it-better-for-a-married-couple-to-file-jointly-or-...

[NCperson]

@donutheist - what you are proposing doesn't work, that is why you can't figure out how to do it in TT.  

You are legally married so your only choice is filing MFJ or MFS.  

There is no such thing as "alimony' because you are legally married. 

And in any event, even if you were divorced, only alimony paid on divorces finalized prior to 2019 are tax deductible (and income to the recipient). 

If you earned the money and file Separate, you are paying the tax on it.  There is no way to get your spouse to pay the tax (other than netting the payments to her to reflect the taxes you have to pay).

The laws favor married couples as Congress passes laws that protect the sactimony of marriage. 96% of married couples file "joint".  @VolvoGirl points out some of the preferences that are lost by filing MFS.  It is abhorently a bad decision when the two individual's income vary significantly. 

I have yet to find a financial situation where it makes sense for a married couple, regardless of the emotional state of their marriage, to file Separate.

I suspct the last 4% are either situations where two people can't agree to sign the Joint return (the emotional issues) or naiviety (and I've run into Newlyweds who thingk filing separate is the way to go).  

are there children involved? 

[donutheist]

I understand this but I think she already file MFS. This gives me no option.

She has her income (while not as much as mine, it's an income)
I send her half automatically via direct deposit

She doesn't deduct what I send her but I don't see a way to let the tax return say "hey, half of my money goes to her"

[NCperson]

@donutheist - we are talking 2021 tax return ("she already filed MFS")

she can amend so that it is a joint return.  that isn't a problem

you have an option, but if she is unwilling to amend and / or sign a joint return, then I agree, you have no option. 

[Mike9241]

@donutheist  I don't know how she would report the money you gave her. without legal separation or divorce it's your income totally. 

[VolvoGirl]

What do you mean she doesn't deduct what you send her?  Deduct it from what?  Does she report it as income?

[donutheist]

I believe that's what she means, but even if she did, It sounds like I am still not going to benefit from it.

From what I've read, even when we do divorce, I will no longer be able to deduct the alimony I send her, so effectively I will keep half the income and pay taxes on all of it.

I don't understand how people are expected to live that way.

[donutheist]

Of course. In brief, we started out as friends, dated, married, it didn't work out.. Sold the house and moved in 2019. I gave her all the equity so she could buy a townhome. We get along great for the most part.

So now that we're in a situation where we get along better and I am making things extremely fair, the IRS is making it impossible for me to live.

I am going to need to talk to a tax attorney.

[NCperson]

@donu

<<From what I've read, even when we do divorce, I will no longer be able to deduct the alimony>>

but since all attorneys on both sides of the table understand you can't deduct the alimony nor does the recipient declare it as income, the negotiated payment takes that into account.  So broadly speaking alimony payments negotiated after 2018 are lower that pre-2019 negotiated alimony, because  all parties understand these are after-tax payments 

a visit to a marriage attorney may do you more good than a visit to  tax atttorney, just a thought. 

[dmertz]

"I direct deposit half of each paycheck into her account."

That's the root of the problem.  That arrangement cannot produce the intended result.  By basing it on your paycheck you could cause her to receive less by simply increasing your tax withholding.  If you are eligible to participate a 401(k) plan offered by your employer you could cause her to receive less by making elective deferrals to a 401(k).  An equitable arrangement would not be dependent on those factors.  You'll need to come up with a better arrangement to get the result that you want.

[donutheist]

We need to

1. Amend her return as MFJ
2. Consult attorneys to determine how to move forward

[VolvoGirl]

So you haven't filed 2021 yet?  It's too early to file 2022.  

[donutheist]

No, the split had us selling a house, buying, moving.. just need to do these two returns and then caught up.

[Carl]

Looks to me like you have nothing to work with here. As far as tax law goes, you're still legally married. My impression is that you're not even legally separated either. So your only options are MFJ or MFS.

Under current tax law that went into effect in 2018, alimony paid is not deductible by the payer, and it's not reported as income by the recipient.

If she has already filed her 2021 return as MFS and is not willing to amend to MFJ, then you have no choice but to file MFS and pay the taxes on all of your income, regardless of what you did with that income.

If she agrees to amend from MFS to MFJ (and she doesn't have to) then it's all good. If any additional refund is due, she is legally entitled to half of it. (Half would be figured on the total of any refund received already when she filed MFS, plus any additional refund received after amending to MFJ).

Also, take note that amended returns can take 6 months or more to process. So if any additional refund is due, you'll be waiting quite awhile.