As far as I can tell, “Married filing separately” means you have to pay more taxes than either “single” or “married filing jointly”. I’m sure there’s someone somewhere who would be better off using “married filing separately” but it seems to hurt the vast majority of filers.
Now I realize the tax code doesn’t necessarily make sense, but seems to me the logical way of doing things would be to simply have two tax statuses “Filing as Married” or “Filing as Individual” (IE, either single people or else married people who chose to file separately). I don’t understand why there’s any reason to have a third “Married but filing separately” status with its own rules (that seem to work against almost everyone)
Is there any sort of logical reason for the tax code to have “married filing separately” with its own rules, instead of simply letting married people use the “single” rules?
Couples who are estranged but still legally married use this.
There are rare cases where it does save money to do this. One example is where one of the two spouses has a large amount of deductibles subject to a floor (like medical or reimbursed business expenses) and not such a high income. With a combined income they could lose most of those write-offs.
Yeah, OK, but all of that could be attained by just having the tax system allow married people to file as individuals (using the “single” rules) if they want. Is there any logical reason congress set up the tax laws with a third “married filing separately” set of rules instead of just allowing married people to use the single rules if they want?
I just realized that I didn’t read the question very well.
A better answer to the actual OP is that the gov’t doesn’t want to encourage married couples to file two tax forms because it makes twice as much work for the IRS so they use the tax code such that people aren’t likely to do it.
Because some rich guy lobbied Congress some time in the past and said, “I don’t want to file jointly with my wife because she makes bupkis and if we file separately we can pay fewer taxes,” and his bought-and-paid-for Congresscritter revised the tax code to benefit him.
That’s how it always works.
As to how it’s beneficial, you have to live in one of the 41 states that are not “community property” states where your income is considered 50/50 for each spouse. Then you have to look at whether one spouse makes a significant share of the family income and the other very little. And then you have to look at which spouse can qualify to take more deductions, thereby reducing their tax liability the most.
In some cases it is financially beneficial to file separately. In some cases it is not. But there are many considerations and pitfalls if you file separately, like not being able to take the child care tax credit or make a Roth IRA contribution if your AGI exceeds $10,000 for example.
Basically, it’s a gimmick for a certain segment of the population to take advantage of to lower their responsibility to pay taxes, just like all other tax schemes out there.
No, that’s my point – the rich guy who lobbied congress would have still gotten that same benefit if he’d just lobbied them to allow married people to file using the “single” rules if they choose. Plus, that has the benefit of being simpler, and more intuitive than introducing a third “married, filing separatly”.
So why didn’t the rich guy lobby for “filing as single (even though I’m married)” status?
They may have lobbied for it, but didn’t get it. One of the differences between “married filing separately” and each person filing as “single” is in the itemized deduction/standard deduction.
Married filing separately may in certain circumstances provide for a lower total tax bill by allowing one spouse to use certain deductions that are subject to a floor. But married couples are still treated as a single unit in that a couple filing separately must either both take the standard deduction or both itemize. You can't have the person with $10,000 in deductions itemize and the one with no deductions take the standard deduction. Allowing each to file as single would allow one to itemize while the other took the standard deduction ,allow one to take the child care tax credit and other credits not currently available to those filing separately and often allow them to avoid the phase-out of some of those credits as income rises. The short version is it would decrease revenue (probably greatly, because many married couples would benefit by one person taking all the itemized deductions if the other person could still take the standard deduction) and sometimes in ways that aren't obvious. Do we really want the spouse of someone making $500,000/yr qualifying for the earned income credit because his/her only earned income is $12,000/yr for sitting on some board and they each filed as single?
Hm, good point. Another effect of this would be that couples would put all of their charitable giving, etc., in one spouse’s name, while the other (who would otherwise take no deductions at all) takes the standard deduction.
This is BS. If we’re going to bandy about apocryphal stories about rich guys lobbying Congress, then we might as well give up and go home.
Married Filing Separate serves a real need. It isn’t a common need, but the need exists. There are three uses that I see:
to limit each spouse’s liability for taxes. Remember, a joint return makes you jointly and severally liable for the tax due - including tax assessed under audit. Imagine that you’re the trophy wife of Mr. Moneybags, who cheats like crazy on his taxes. You divorce him and two years later, you are notified that a joint return is being audited. The IRS assess $2 million assessment. It turns out he’s bankrupt and has no assets, so the IRS takes everything you have. Filing MFS prevents this.
to limit each souse’s liability for other debts. The IRS will withhold refunds to pay liabilities like back child support, student loans or other taxes. To avoid having your tax refund taken to pay the spouse’s liability, you file MFS.
to limit tax. Every once in a while, by accident really, MFS produces a lower liability. The rules for MFS filing work very hard to limit the cases where you can reduce tax liability, but it still happens. This is a quirk of the rules as far as I’m concerned - every tax law produces some unintended results here and there.
I just did my DC taxes today, and I was very surprised to see that “married, filing separately on same return” changed a $800 tax bill into a $500 refund. I can’t figure out exactly why that’s the case, since the tax software is doing all the work. The Federal return is being filed jointly.
This is a very good post. I already addressed #3 but you explained it better. The the other case is when the couple is estranged. A friend of mine was in that situation with her ex-husband before the divorce was final.
My wife and I file separately. She makes less than I do and has a pretty high level of student loan debt. Her income qualifies her for the income based repayment plan on the loans and because she’s a social worker for a non-profit the remainder of the balance is wiped out after ten years. If we filed jointly, both our incomes would be used to calculate the payment and she wouldn’t qualify for the IBR.
Filing separately makes us miss out on the student loan interest deduction and will, when we have kids, preclude us from claiming the child care one. But the money we save on the loan payments surpasses that by a very wide margin.
Missed the edit window. My point was, which I didn’t really state, it’s really as if the government can only look at the final AGI on the tax return and if you want to have them to look at your incomes separately you need to explicitly tell them to do so. And as mentioned above you can’t just file as single because of the itemization issue.
Prior to WWII, it was common for men to just abandon their wife and go to a different part of the country. A divorce wasn’t possible until several years had passed. The abandoned wife was still legally married, but had no way of knowing her husband’s income, or even where he was. She couldn’t file jointly without that information, and couldn’t use the single rate since she was legally married. Hence, when the tax code was written, it had to have a category to include this status.
It wasn’t all that rare; in the 19th century, that was the way many American men “divorced” their wives, moving west and telling everyone they weren’t married. There was no way to check.
That sort of abandonment is rare these days (it’s far easier to track people down), but the category remains for those who find it an advantage.
The assumption in the original post is that people always choose the most cost efficient way of doing things, but in real life, there are other factors that have nothing to do with costs.
Umm, no. It’s almost never a benefit to file MFS, and especially in your scenario, the rich husband would pay a shit-load more if the wife earned very little. You are utterly wrong.
That’s how it *never *works.
MFS is rarely used, and when it is, it is because of legal issues, being separated, etc.
Why don’t they allow them just to each file Single? Because each filing single is a significant tax benefit in most cases, except in the case cited above with one high earner and one very low earner.
Not completely true.
I have good knowledge of one case where there were no legal issues, but MFS resulted in less tax overall than MFJ. (Basically, one spouse had reasonable wage income, the other only some realized capital gains; as capital gains tax is lower with lower overall income, so it turned out MFS resulted in less overall tax).
I’m not sure about all the pre-WWII rules, but in the modern tax code, you can file as single or head of household in the case described. There are several different tests, but even the most stringent only requires that you lived apart all year and had no financial dealings with the other spouse.
It has been my experience that for matters of claiming someone as a spouse or dependent (say mom and ex-husband both claim child) that, for e-filing, the second return to be submitted will get kicked back in error by the IRS. So If I file Married Filing Jointly and my spouse later goes with Married Filing Separately, hers will get rejected.