Financial Resource Center


Couples: 3 Reasons to File Taxes Separately

by Rena Crispin, CUDE, CCUFC / March 5th, 2021

The clock is ticking for tax season. If you’re married, the tax breaks generally are in your favor when you file jointly. But, if you haven’t filed your return yet, consider these scenarios where it might make sense to file separately.

  • Self-employed: If one of you is self-employed and the other works for a traditional employer, the one who is self-employed is responsible for estimating quarterly payments owed for income, Social Security and Medicare taxes.

    If the self-employed spouse hasn’t been keeping up the quarterly payments or underestimated how much was needed to be set aside, that can add to joint tax liability or eat into a refund.

    Splitting your taxes might be a better move. It might disqualify you from claiming certain credits or deductions, but it could minimize the amount of tax you'll owe overall.
  • Student loan debt: If one of you has student loan debt and wants to be considered for an income-based repayment plan, both incomes will be considered when filed jointly, even if only one person is responsible for paying the debt.

    Conversely, if you file returns separately, only the student’s income will be taken into account to determine what kind of payments that person qualifies for.

    As in the self-employment scenario, you sacrifice certain other tax benefits when you file individually, but under certain circumstances--such as not claiming children and taking the standard deduction--you might pay less in taxes, overall, than if you file jointly.
  • Itemized deductions: Itemized deductions help reduce taxable income, but the more you make the lower the tax benefits--the IRS limits how much you can write off based on what you make. If one of you has a substantial amount of deductions along with a pretty sizable gap in earnings--for example, if you racked up huge medical bills and only earned a small percentage of what your spouse earned--you might benefit from filing separate returns rather than combining your incomes on your taxes.

There are other scenarios to keep in mind when planning your tax strategy as well, including divorce or uncertainty about liability for your spouse’s tax debt. Everyone’s tax circumstances are different. Work with an independent professional tax adviser or a tax specialist at your credit union before making tax-related decisions. Run the numbers to get an idea of how much you stand to gain or lose either way.

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