Married taxpayers who do not want to file jointly can choose married filing separately as their filing status. You can choose this status if you want to report only your income or if you and your spouse will owe less tax by filing separately instead of filing jointly. But by opting for the status of married filing separately, you will see some major tax credits cut in half and lose other valuable tax credits entirely. You will also lose deductions related to the credits.
Filing your taxes as married filing separately will reduce any child tax credit by half. You will also lose half of the first-time home buyer credit and retirement savings contribution credit. Reduction or loss of any tax credit is worse than losing a tax deduction because credits reduce your tax bill dollar for dollar, while deductions only reduce your taxable income.
Electing married filing separately means you will lose several tax credits entirely. You will lose the credit for child and dependent care expenses, and the credit for adoption expenses. If you lived with your spouse during the tax year, you will also lose the credit for the elderly and disabled. The income exclusion for employer dependent care assistance is cut in half, to $2,500 instead of $5,000.
Earned Income Credit
As married filing separately, you will also lose the earned income credit. This is an especially sore loss because this is a refundable credit. Other credits can only take your tax bill down to zero. But the earned income credit gets you money back even if other credits and deductions have already offset your entire tax bill.
You won’t be able to take education credits and deductions. You will lose the American opportunity credit and the lifetime learning credit. You also lose the deduction for student loan interest and the tuition and fees deduction. And you won’t be able to exclude from income the interest on U.S. savings bonds that you cash in for college expenses.