Filing taxes jointly or separately for married couples

[Aminat]

Hi! 
Last year I filed my tax married filing separately but I wanted to discuss with you if this is the best way to file. My husband has no student loans but I do. We have no kids presently but we have one on the way. We bought a house and two cars this year. I do get paid more than my partner and I intend to apply for pslf. Currently, the student loan pause has resumed and I’m wondering what will be best way to file - separately or jointly. Thanks. 

[xmasbaby0]

If you file separate returns---you lose the education credit for student loan interest, you lose the childcare credit, you lose earned income credit, and have less income to count toward the child tax credit.

If you were legally married at the end of 2023 your filing choices are married filing jointly or married filing separately.

Married Filing Jointly is usually better, even if one spouse had little or no income. When you file a joint return, you and your spouse will get the married filing jointly standard deduction of $27,700 (+$1500 for each spouse 65 or older)  You are eligible for more credits including education credits, earned income credit, child and dependent care credit, and a larger income limit to receive the child tax credit. 

If you choose to file married filing separately, both spouses have to file the same way—either you both itemize or you both use standard deduction. Your tax rate will be higher than on a joint return. Some of the special rules for filing separately include: you cannot get earned income credit, education credits, adoption credits, or deductions for student loan interest. A higher percent of your Social Security benefits may be taxable. Your limit for SALT (state and local taxes and sales tax) will be only $5000 per spouse. In many cases you will not be able to take the child and dependent care credit. The amount you can contribute to a retirement account will be affected. If you live in a community property state, you will be required to provide additional information regarding your spouse’s income. ( Community property states:  AZ, CA, ID, LA, NV, NM, TX, WA, WI)

 If  you are using online TurboTax to prepare your returns, you will need to prepare two separate returns and pay twice.

https://ttlc.intuit.com/questions/1894449-married-filing-jointly-vs-married-filing-separately

https://ttlc.intuit.com/questions/1901162-married-filing-separately-in-community-property-states

https://ttlc.intuit.com/questions/1894449-is-it-better-for-a-married-couple-to-file-jointly-or-separ...

"We bought a house"

Home Ownership

There is not a first time home buyers credit on a Federal return. That ended in 2010. If your state has such as credit, you will be able to enter it when you prepare your state return.

Buying a home is not a guarantee of a big refund.  Your deductions for homeownership combined with your other deductions (if any) must exceed your standard deduction to change your tax due or refund. If you purchased your home late in the year, you do not even have a full year of home 

ownership deductions.

Your closing costs on your new home are not deductible except for prepaid interest, prepaid property tax or loan origination fees.  There are no deductions for appraisal, inspections, title searches, settlement fees. etc.

Your down payment is not deductible.

Your homeowners insurance for fire, hazard, flood, etc. is not deductible for your own home.

Home improvements, repairs, maintenance, etc. for your own home are not deductible.  

Homeowners Association  (HOA) fees for your own home are not deductible.

Go to Federal> Deductions and Credits> Your Home to enter mortgage interest, property taxes, and loan origination fees (“points”) that you paid in 2022.  You should have a 1098 from your mortgage lender that shows this information.  Lenders send these in January/early February.

HOMEOWNERSHIP DEDUCTIONS

It is very hard for a lot of people to use itemized deductions now that the standard deduction is so much higher.  Your home ownership may not have any effect on your tax due or refund, especially if you purchased the house late in the year.  

Standard Deduction

Your itemized deductions have to be more than your standard deduction before you will see a change in your tax owed or tax refund.  The deductions you enter do not necessarily count “dollar for dollar;” many of them are subject to meeting  tough thresholds—medical expenses, for example, must meet a threshold that is pretty hard to reach.  The software program uses all the IRS rules that apply to the expenses you enter, and it tells you if you have enough to use your itemized deductions or if using the standard deduction is more advantageous for you.  Under the new tax laws, some deductions have been capped—there is a $10,000 limit to the itemized deductions for state, local, property and sales taxes. 

2023 STANDARD DEDUCTION AMOUNTS

SINGLE $13,850  (65 or older/legally blind + $1850)

MARRIED FILING SEPARATELY $12,850  (65 or older/legally blind + $1500)

MARRIED FILING JOINTLY $27,700  (65+/legally blind) )  + $1500 per spouse

HEAD OF HOUSEHOLD  $20,800 (65 or older/blind)  + $1850)

[Katherine S 63]

Hello great question!

It is hard to say exactly what is best.  If you have student loans and need the loan payment to be based only on your income then many people decide to file married filing separately.  If this is not the case and you do not need to show a lower income, then Married Filing Jointly is usually the best way to go.

If you do want to see what is best, you can get Turbotax desktop and enter up to 5 returns in that software.  You can try one at Married Filing Jointly and two that are Married FilingSeparately.   You can use this link to purchase Turbotax Desktop.   https://turbotax.intuit.com/personal-taxes/cd-download/

This link talks about Married Filing Jointly vs Married Filing Separately.  https://turbotax.intuit.com/tax-tips/marriage/should-you-and-your-spouse-file-taxes-jointly-or-separ...

You will notice that there are some credits that are not available for Married Filing Separately.

Here are the main highlights:  

Couples who file together can usually qualify for multiple tax credits, such as the:

• Earned Income Tax Credit
• American Opportunity and Lifetime Learning Education Tax Credits
• Exclusion or credit for adoption expenses
• Child and Dependent Care Credit

Joint filers mostly receive higher income thresholds for certain taxes and deductions—this means they can often earn a larger amount of income and still potentially qualify for certain tax breaks.

What are the potential cons of filing your tax returns separately?

On the other hand, couples who file separately typically receive fewer tax benefits. Separate tax returns may result in more tax.

• In 2023, Married Filing Separately taxpayers only receive a Standard Deduction of $13,850 compared to the $27,700 offered to those who filed jointly.
• If you file a separate return from your spouse, you are often automatically disqualified from several of the tax deductions and credits mentioned earlier.
• Additionally, separate filers are usually limited to a smaller IRA contribution deduction.
• They also can't take the deduction for student loan interest.
• The capital loss deduction limit is $1,500 each when filing separately, instead of $3,000 on a joint return.

I think once the forgiveness has been settled and you know exactly what is going on with your loans, you will definately want to file Married Filing Jointly.

Please give me a thumbs up if this was helpful.

Katie S.

[Aminat]

Thanks for your response!

if I choose to file jointly, will this affect how much i pay in student loans? Also, will I still qualify for pslf? 

[Loretta P]

Hello Aminat,

You may want to check out the Student Loan Simulator 

[Ruth C-L]

Yes, if you file jointly it will increase the amount of monthly payments you'd need to make regardless of which repayment plan you choose. Some married couples choose to file separately even if the tax impact is negative because their monthly student loan payments end up being much lower if they file separately.