The Internal Revenue Service recognizes that not all spouses want to throw their money into the same pot. Some couples have good reasons why they don’t want to file their taxes together, and the IRS won’t force you to do so if you don't want to. Unfortunately, you might find that you’ll pay a little more in taxes.
Why File Separately?
When you file a joint married return with your spouse, you’re “jointly and severally liable” for it and any taxes due. In plain English, if your spouse fudges a little, reporting inaccurate income or claiming deductions she’s not entitled to, the IRS will hold both of you legally responsible. If she earns all the money and owes thousands of dollars in tax, you’re just as responsible for paying it as she is – even if you’re not even working.
Spouses who opt for separate returns typically do so because they’re squeamish about this rule, but maybe they just want to keep their finances separate. If your spouse won’t agree to sign a joint return with you, your only other choice is to file separately. Registered domestic partners don’t have the option of filing joint married returns because the IRS doesn’t consider them married, but same-sex married couples have the choice.
When you file a separate return, you’re responsible for only what you personally reported and claimed and any tax due on the income you earned yourself. By the same token, the IRS closes the door to you on several tax credits.
The Earned Income Tax Credit
The EITC is designed to help low- and some middle-income taxpayers keep more of their money. It reduces the amount of tax you owe and is one of only a few credits that may also provide a refund. You must have earned income, which basically means that you work for wages or salary or you operate your own business. And there are limits to how much you can earn to qualify.
Unfortunately, taxpayers who are married but filing separately can’t take this credit.
The Child and Dependent Care Tax Credit
This one isn’t entirely off-limits for married separate filers. You can still qualify if you and your spouse no longer live together, but otherwise, you’re out of luck. And if you are separated, some restrictions apply.
The Child and Dependent Care tax credit is equal to a portion of what you spend on care for a dependent so you can leave home to work or look for work. It requires that you have earned income to qualify, and your dependent must be younger than age 13 or disabled to the extent that he cannot take care of himself. Most taxpayers can exclude up to $5,000 of income under their employer’s dependent care assistance program when qualifying for this credit, but separate filers are limited to $2,500.
Education Tax Credits and Deductions
Separate filers don’t qualify for the American Opportunity tax credit or the Lifetime Learning credit, either. The American Opportunity credit is worth up to $2,500 per student – you, your spouse or your dependents – during the first four years of college. It’s partially refundable so you might get some cash back. The Lifetime Learning credit is similar but it’s not limited to four years. It’s worth up to $2,000.
The tax deductions for student loan interest and tuition and fees are unavailable to separate filers as well, and these taxpayers can’t exclude from their incomes any interest earned on U.S. savings bonds if they use the money to pay for qualifying higher education costs.
The Tax Credit for the Elderly and Disabled
Maybe you’re separated but you haven’t gotten around to filing for divorce yet. You can still claim the tax credit for the elderly and disabled if you file a separate married return and if you qualify, but not if you lived with your spouse at any time during the tax year.
This credit is available to those who are age 65 or older, or younger than age 65 if they meet the requirements for disability. It isn’t as generous if you file a separate married return. It requires that taxpayers include a percentage of their Social Security or railroad retirement income for calculation purposes, and those who file separate married returns must include a greater percentage, up to 85 percent. The total possible credit reduces from $5,000 to $3,750.
The Adoption Tax Credit
The adoption tax credit is nonrefundable – all it can do is whittle away at your tax bill – but it will compensate you for some of the money you spend when adopting a child. And it can reduce your tax bill for up to five years until it’s used up. It might eliminate your tax debt in year one and you can then use any balance left over against your tax debt in year two and so on for up to five years. But you can't claim the credit if you’re married and file a separate return.
It Might Not Be Too Late
Despite all these lost credits, it’s sometimes more advantageous financially to file a separate married return. You might not be eligible for any of these credits if you go the standard deduction route, but if you itemize, it's possible that you can catch a tax break. Certain itemized deductions, including the one for medical expenses, are based on a percentage of your earnings. For example, you can only claim a deduction for expenses that exceed 7.5 percent of your adjusted gross income in 2018.
If your personal income is negligible, you might be better off not filing a joint return and including your spouse’s income if you want to claim these deductions. The threshold percentage of $20,000 in income is obviously much less than that of $80,000 in income. The IRS lets you amend your joint married return to separate returns up until the due date for that tax year.
If you’ve already filed a separate return and you realize that you could have claimed one or more of these credits if you’d filed jointly with your spouse, it’s not too late to change that, either. You can file an amended tax return, Form 1040X, up to three years after the due date of your original separate return. This doesn’t count any extensions you might have taken, so this is typically the April filing deadline.
- IRS: Publication 17 – Married Filing Separately
- Investopedia: Married Filing Separately
- US Tax Center: How Getting Married Affects Your Taxes
- IRS: Understanding the Child and Dependent Care Tax Credit
- IRS: EITC, Earned Income Tax Credit, Questions and Answers
- IRS: Nine Facts About the Adoption Tax Credit
- IRS: American Opportunity Tax Credit
- IRS: Lifetime Learning Credit
- IRS: Publication 524 (2017), Credit for the Elderly or the Disabled