
Filing Married Separate can lead to a myriad unexpected and in many cases unnoticed and unfavorable tax consequences. The article includes a condensed list of encountered consequences.
CONSEQUENCES OF FILING MFS
This is a condensed list of commonly encountered issues when married taxpayers use married filing separate status as opposed to filing a joint tax return. PO = phaseout Dollar amounts are for 2023 |
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Attribute |
Married Joint |
Married Separate |
Filing Threshold |
Std Deduction + age 65 amts. |
$5 |
Changing Filing Status |
MFJ to MFS allowed only if by the unextended due date. MFS to MFJ OK within 3 years of the unextended due date. |
|
Community Property |
Only applies when filing MFS returns |
Earned income split; FICA, SE Tax, IRA separate |
Joint & Several Liability |
Both spouses are responsible for the tax |
Only responsible for tax on separate return |
SS Benefits Taxation Threshold |
$32,000 |
Zero (Entire amount taxed at 85%) |
Capital Loss Limitation |
$3,000 |
$1,500 |
Sec 179 Limitation |
$1,160,000 |
Allocate between spouses |
Rental Loss Limitation |
$25,000 – PO: 100K-150K |
$12,500 – PO: 50K-75K |
Traditional IRA |
Both Active PO: $116K - $136K One Active PO: $218K - $228K |
PO: $0 - $10,00 |
Roth IRA |
PO: $218K - $228K |
PO: $0 - $10,000 |
Series EE or I Bonds – education exclusion |
Allowed |
None Allowed |
Higher Education Interest |
$2,500 per year |
None Allowed |
Standard Deduction |
$27,700 + Age 65 Amounts |
$13,850 + Age 65/blind Amounts |
Standard vs Itemized |
Optional |
If one itemizes both must, except if filing HH even if the other itemizes. |
Medicare Premiums |
Rates for MFS are significantly higher based on MAGI |
|
Home Mortgage Interest |
MFS spouses are treated as if they are one taxpayer and will have to split between them the amount they would be entitled to jointly. If two homes each can only claim interest on one unless they agree one can claim both. |
|
AMT |
Use half of MFJ exemption and PO. MFS threshold for 28% tax rate is half that of MFJ |
|
Tax Rates |
Marginal rates for MFS are twice that of MFJ |
|
Child & Dependent Care Cr. |
MFS cannot claim unless legally separated |
|
Child & Other Dependent Cr. |
PO Threshold: $400K |
PO Threshold: $200K |
EITC |
Where one spouse can file as HH and lives in a community property state, EI for the credit does not include amounts earned by the other spouse |
|
Adoption Cr. |
Allowed for MFS only if spouses lived apart last 6 months, child lived with taxpayer more than half the year, taxpayer provided over half the cost of maintaining the home. |
|
Elderly & Disabled Cr. |
Allowed |
Not Allowed |
Retirement (Saver’s) Cr. |
No credit if AGI over: $73.3K |
No credit if AGI over: $36.5K |
Tax Withholding |
MFS taxpayers only claim their own unless community property |
|
Estimated Tax Allocation |
Jt. estimates divided any way they can agree. Can’t agree, in proportion to MFS return tax. |
Take credit for own payments |
Estimated Tax High Income Safe Harbor – Prior Year Tax |
AGI > $150,000 110% of prior year tax |
AGI > $75,000 110% of prior year tax |
Premium Tax Credit |
Can claim |
Cannot claim. Exceptions: victim of spousal abuse, abandonment and low-income minimum payback. |
Automatic 2-month extension Out of the country |
Applies to both even if only one spouse out of the country |
Applies only to spouse out of the country. |