When filing separately should the higher or lower income earner claim the child

[OrangeRob]

My wife and I are married and live together, currently expecting our first child. There's a sizable income disparity my gross is around $200k, hers is roughly $45k. Who should claim the child on the returns? 

In case it's relevant we can't file jointly due to student loans. She's on income driven repayment and if we file jointly her payments are based off our combined income but without my own student loan expenses factored in. If we fine jointly she ends up with a payment of roughly $1,200 a month, currently it's at $180, that comes out to roughly $12,000 more annually in loan payments. 

[Bsch4477]

Try it both ways to see which is better. 

[OrangeRob]

If turbo tax made it easy I would. You ever try to compare filing jointly and filing married but separate? Takes 3 accounts, I'm not about to start creating more accounts for a question a reasonable tax expert should be able to answer.

[rjs]

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@OrangeRob wrote:

If turbo tax made it easy I would.

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The CD/Download TurboTax software (sometimes called the desktop software) makes it easy. You buy one copy and install it on your Windows or Mac computer. It lets you create as many returns as you want for different scenarios, and you can make a copy of a return and just make changes, so you don't have to enter everything again. If you want to do a joint vs. separate comparison there is a worksheet that makes it almost automatic.

[xmasbaby0]

Some things to keep in mind when you are comparing MFJ vs. MFS---if you file MFS you cannot deduct student loan interest.   You cannot use the childcare credit; if the higher earner's income is above $200K your child tax credit will be reduced if that parent claims the child.

[xmasbaby0]

"........I'm not about to start creating more accounts for a question a reasonable tax expert should be able to answer...."

You want a cut and dried answer but we do not know all of your circumstances.    We do not know if you are arguing with your spouse about this and need tie-breaker rules, whether there are other variables to consider....etc.....which is why you are being told to prepare the returns both ways to see how it comes out better.

Only one parent can claim the child---there is no "sharing" of the child-related credits if you file MFS.   So only one of you will enter the child on your tax return if you file MFS.  

TIE BREAKER RULES

https://itap1.for.irs.gov/owda/0/resource/Commentary_Files_Redirect_ITA/en-US/help/tbrk09.html

If you  are legally married at the end of 2024 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 $29,200 (+$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 since with online, you get one return per fee.

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...