The simple act of saying “I do” was the easy part. Now that you’re married, consider whether it makes more sense to file your taxes jointly or separately.
It’s an age-old dilemma that couples face every year due to the benefits and drawbacks of each option. A simple coin toss to determine which path to take may end up being more expensive or cause you to miss out on significant tax credits and deductions, resulting in a smaller tax refund.
For example, the standard deduction for married couples filing jointly this year is $25,900, compared to $12,950 for single filers. According to Tim Speiss, a CPA and partner at EisnerAmper in New York, this is especially important for newlyweds who aren’t yet homeowners because it makes more sense for them not to file an itemised return and instead take the standard deduction.
What does it mean to file jointly?
Unless you are married, you must file your taxes on your own. However, if you are married, you can choose whether to file a joint return or two individual returns.
When you file a joint tax return, your income and your spouse’s income are combined. Joint income is taxed at a different rate than single income.
To account for inflation, the Internal Revenue Service raised the filing thresholds for taxes filed this year.
Married couples filing jointly face the following marginal tax rates:
35% for incomes exceeding $431,900
32% for incomes greater than $340,100
24% for earnings of more than $178,150
22% for earnings of more than $83,550
12% on earnings over $20,550
10% for incomes under $20,550
Individual tax rates at the margin:
35% for incomes exceeding $215,950
32% for earnings of more than $170,050
24% for earnings of more than $89,075
22% for earnings over $41,775
12% on earnings over $10,275
10% for incomes under $10,275
Importantly, filing jointly means you’re both liable for any money you and your spouse owed to the IRS prior to your marriage.
What are the requirements for married couples filing jointly?
You must have been legally married by December 31, 2022 in order to file a joint tax return in 2023. So, as long as you got your marriage licence in 2022, you’re legally married according to the IRS.
However, if you divorced or legally separated from your spouse during 2022, you are considered unmarried for the entire year and cannot file a joint return.
Is there a benefit to filing jointly?
“When you file jointly, you typically get the largest legitimate refund,” says Scott Curley, co-CEO of FinishLine Tax Solutions, a Houston-based tax consulting firm.
This is because married couples filing jointly are eligible for more tax breaks and credits. The Earned Income Tax Credit (EITC), for example, is generally available only to married couples filing jointly. The EITC allows low-income families with three or more children to deduct up to $6,935 from their taxes.
Here are the EITC income requirements for 2022.
Similarly, only married couples filing jointly are eligible for the Adoption Credit and the Child and Dependent Care Tax Credit. These credits can directly reduce your tax bill and result in larger refunds.
Furthermore, couples filing jointly must meet significantly higher income thresholds to make the maximum $6,000 deductible IRA contribution.
When should a married couple file separately?
If you had a significant amount of out-of-pocket medical expenses last year, you may want to file a separate return. This is due to the fact that the tax code allows you to deduct out-of-pocket medical expenses that exceed 7.5% of your adjusted gross income. When you file jointly, you have one adjusted gross income that is subject to the 7.5% rule.
So, if you had $15,000 in out-of-pocket medical expenses last year and earned $70,000, you could deduct $9,480 ($70,000 x 7.5% = $5,250; $15,000 – $5,250 = $9,480). If you filed jointly and your adjusted gross income was $200,000, you would not be able to deduct any of your medical expenses because they would not exceed 7.5% of your adjusted gross income.
Another scenario in which filing a joint return may not make sense is if one spouse has a significantly lower income, according to Speiss. This is because the lower-income spouse may be eligible for more itemised deductions if they file jointly rather than separately.
Also, if you don’t owe any money to the IRS but your spouse does, filing jointly could result in your tax refund being applied to the IRS bill.
“The system makes no distinction between parties if they file jointly,” says FinishLine’s Curley. However, if you file separately, you will not be responsible for your spouse’s tax burden.
Curley claims that “dozens” of his clients have run into this problem over the years because one spouse was not forthcoming with the other about how much money they owed the IRS.
He suggests discussing this with your partner before you tie the knot.
