Should me and the wife file separately?

[pmeyer84]

Me and the wife filed jointly last year (2018). Our nearly $4,000 return was swallowed up by a defaulted loan my wife has towards the US Dept of Ed, and she still owes $6,000 on it, which she's paying off at $5 a month due to both of us being out of work because of the corona virus, My question is, should we file married/separately this year? The majority of income is mine, I am head of household, and I am claiming both our children. 

[xmasbaby0]

If you all live together you are NOT "Head of Household"  --- that has a special meaning for tax returns that does not apply to you if you are living together as a married couple.  

You can file a joint return and YOU can file as the "injured spouse" in order to protect your part of the tax refund.   If you file married filing separately you lose child-related credits like earned income credit or childcare credit, and your child tax credit is based on a lower amount.

INJURED SPOUSE

https://ttlc.intuit.com/questions/1910698-how-do-i-file-form-8379-injured-spouse-allocation

If you were legally married at the end of 2019 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 $24,400 (+$1300 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...

[xmasbaby0]

FYI

Am I Head of Household?

https://ttlc.intuit.com/questions/1894553-do-i-qualify-for-head-of-household

https://ttlc.intuit.com/questions/2900097-what-is-a-qualifying-person-for-head-of-household

If you qualify as Head of Household, when you enter your filing status (single or married filing separately) into MyInfo, and then enter your qualifying dependent, TurboTax will offer HOH as your filing status.

[pmeyer84]

If I file as the injured spouse, am I guaranteed to get my portion of the tax return? She has very little income, and a lot of debt. I'm just trying to ensure that our entire federal return doesn't get eaten up again this year. 

[macuser_22]

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@pmeyer84 wrote:

If I file as the injured spouse, am I guaranteed to get my portion of the tax return? She has very little income, and a lot of debt. I'm just trying to ensure that our entire federal return doesn't get eaten up again this year. 

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It depends.  If you live in a community property state then the refund is community property and you cannot protect that part.    On the other hand, filing separately in a community property state requires income allocation that can be even worse, pulse you loose most of the child credits.

The best way to handle this in the future is to adjust your tax withholding so that you owe a small amount at the end of the year rather than get any refund - then you have a larger paycheck all year rather then give the government a tax free loan to get a refund.

[pmeyer84]

My wife has very little income (under 2 grand) and a pretty decent chunk of debt. 

[pmeyer84]

Wow, turns out, due to COVID 19, they're suspending all tax offsets this year.