As we near the holiday season, you may be looking to treat yourself to those set of wheels you’ve If you and your partner tied the knot in the last year, you may be enjoying this next phase of life as newlyweds. Another “first” as a married couple is also on the horizon – tax season. With this, one big question you and your partner might have is whether you should file jointly or separately.
The IRS offers several tax breaks for couples who file joint tax returns. Most couples, particularly ones who have children or a spouse who doesn’t work, could benefit from filing jointly. This may not apply to everyone, and there are some instances where separate returns make more sense.
Before you and your spouse decide how to file, it’s important to understand both tax treatments. Also don’t forget to consult with a tax professional to see which option could be right for you.
Tax options for married couples
If you’re married, you and your spouse typically have two options in the U.S. tax system: married filing jointly or married filing separately. Both have potential advantages and considerations, and understanding those nuances may help you make a more informed decision.
Married filing jointly
The IRS typically gives one of the larger annual standard deductions to those who choose the Married Filing Jointly status. The standard deduction for joint filers generally exceeds that of single filers and those who choose Married Filing Separately, which can significantly reduce you and your spouse’s combined taxable income.
The tax rate brackets for married filers also tend to be more favorable than for single filers. By combining incomes in a joint filing, married couples often benefit from a lower effective tax rate, especially if one spouse earns significantly more than the other.
The IRS also typically offers other tax benefits to joint filers, including:
- Earned income tax credit: This is a refundable credit for couples and individuals in low- to moderate-income tax brackets with children. The amount of the credit is based on the individual’s income and the number of children in the household.
- American Opportunity and Lifetime Learning Education Tax Credit: This credit is for people attending college or for a spouse incurring tuition costs associated with college or graduate school.
- Child and Dependent Care Tax Credit: Aimed at working couples, this tax credit helps cover some of the cost of paying someone to care for your child or disabled spouse.
- Reimbursement or refund for adoption expenses: This tax credit covers some of the costs associated with legally adopting a child.
Married filing separately
Married couples may think it’s easier to keep finances separate, including taxes. However, doing so could potentially result in you and your spouse paying more taxes than necessary. Couples who file separate tax returns don’t get to take advantage of the tax breaks mentioned above. However, there are certain situations where filing separately may provide potential advantages, including:
- Out-of-pocket medical expenses: For couples with high adjusted gross incomes and a lot of out-of-pocket medical expenses that they want to claim, filing separately may enable them to write off more. Under IRS rules, to deduct out-of-pocket medical expenses, the cost must be more than a certain percentage of your adjusted gross income. A couple making a lot of money may be less likely to get that write-off when filing jointly.
- Student loans: For married couples applying for student loans, filing separately may increase the amount of financial aid they receive. Federal student loans are based on the income shown on your tax return. If your income is lower, filing separately may be more beneficial to reduce your student loan payments. On the other hand, neither spouse can claim student loan interest deductions when filing separately.
- Limit tax burden: Some couples also opt to file separately to limit the tax burden from their spouse’s activities or to avoid liability from their spouse’s tax affairs. Filing separately may protect a spouse from any potential tax events that may arise.
The bottom line
The choice to file jointly or separately ultimately depends on your personal circumstances. Joint filing is often beneficial for couples with disparate incomes, potentially lowering overall tax liability and placing them in favorable tax brackets. Filing separately may be better in situations where one spouse has significant deductible expenses or concerns about joint liability, as it allows for more individualized tax treatment.
Consider consulting a tax professional, as they can provide more tailored guidance depending on your unique situation. A financial advisor can also help you understand how this fits into your long-term plan. If you’re looking for more resources to help you in your financial journey, visit our library of free educational content at chase.com/theknow.
The views, opinions, estimates and strategies expressed herein constitutes the author’s judgment based on current market conditions and are subject to change without notice, and may differ from those expressed by other areas of J.P. Morgan. This information in no way constitutes J.P. Morgan Research and should not be treated as such. You should carefully consider your needs and objectives before making any decisions. For additional guidance on how this information should be applied to your situation, you should consult your advisor.
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