Marriage 101: Filing a Joint Tax Return

Author: Mark Roychowdhury, Graphics: Acasia Giannakouros

The BRB Bottomline: Almost 90% of Americans agree that love is one of the most important reasons to get married. While love is important, it can also blind us from reality — and by reality, I mean filing taxes. In what ways do married couples file taxes? What are the benefits and drawbacks of each method?

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The Joint Tax Return

Overview

When married couples file taxes, they have the option to file either a separate or joint tax return. Filing jointly, as the name suggests, essentially means that both partners must record their “respective incomes, deductions, credits, and exemptions on the same tax return.” Once the return is filed, both partners are held equally responsible for paying the required tax, and together bear the burden of any potential penalties that may result from understatements. The overwhelming majority — more than 95% — of couples in the U.S. file jointly, but many do so without taking the time to consider the merits of filing separately. A solid understanding of both filing methods helps couples make responsible decisions and bring about financial stability, which, in turn, can lead to long-term marital success.

Advantages

Consistent with the intuition of over 95% of married couples, the benefits of filing a joint tax return are quite substantial. Compared to couples who file separately, the tax liability couples undertake by filing jointly is significantly reduced. In fact, a 2020 study determined that couples filing separately were taxed 10% on their first $9,875, while couples filing jointly were taxed 10% on their first $19,750. As a result, even the slightest difference in income between two spouses would confer tax savings for the couple, as any individual income above the $9,875 threshold would be taxed at a higher rate for those who file separately.

Even the IRS themselves state that for the majority of married couples, filing a joint return leads to a lower tax liability. Filing jointly can also enable access to various types of tax credits, which directly reduce the amount of taxes owed to the government. Some tax credits are automatically applied based on the information provided on the main tax return. Others, however, require separate forms to be filled out. Detailed in the list below are three of the most common tax credits awarded to married couples, as well as their eligibility requirements.

• Earned Income Tax Credit (EITC): The EITC is generally provided to low-income and middle class families. Eligibility requirements vary on the number of dependents in the household, but a typical family with two children must earn under $53,865 per year to qualify. A qualifying family would then be able to claim up to ​​$5,980 in tax credits. A family that chooses to file separately would still be able to claim the same $5,980 in tax credit, but would have to make under $47,915 per year to qualify. Filing jointly thus allows for greater leeway in terms of EITC eligibility, especially if one partner has a significantly lower income than the other. 
• Child and Dependent Care Credit: The Child and Dependent Care Credit is designated explicitly to mitigate certain expenses for families with children or other dependents. Eligibility requirements vary on income level as well as the percentage of the household’s income that is allocated towards the care of dependents. Payments towards daycare, after-school programs, and babysitters are some examples of expenses that can be written off. For a family with two children and a gross income of under $125,000, a maximum of $8,000 can be claimed. Single parents filing separately would generally be unable to claim this credit.
• Lifetime Learning Credit (LLC): The LLC can be claimed by married couples with children enrolled in higher education. To qualify for the LLC, joint filers must make under $160,000 a year; eligible households will receive up to $2,000 in tax credits per child. The LLC requires several additional forms to ensure eligibility, including Form 1098-T (the tuition statement that helps determine a household’s tax credit) and Form 8863 (the form where taxpayers enter their household’s education expenses and claim the tax credit).

Disadvantages

With all the beneficial tax credits married couples can apply for, it may seem like a no-brainer to file jointly. In some situations, however, filing separately might be the right choice — even if it means giving up certain tax benefits. One fairly common case where this counterintuitive idea holds true is the scenario for spouses that have taken on a significant amount of student loans and have registered for a student loan repayment plan. Monthly bills for these plans are often based on gross annual income, and for couples that file separately, the amount owed to the IRS is significantly lower than the amount owed had they applied jointly. 

As a case in point, the benefits of filing separately also outweigh the costs for spouses who are trying to pay off large medical expenses. Expenses that exceed 7.5% of an individual or household’s gross annual income may be deducted when reporting to the IRS. The incomes of independent filers are bound to be lower than those of joint filers — large expenses such as medical bills are thus equivalent to a larger proportion of the filer’s income, ultimately leading to a greater tax deduction.

Besides these two specific cases, a general potential disadvantage of filing jointly is with the marriage penalty. Applicable in 15 states across the country, the marriage penalty is an extra liability that married couples must pay as a result of their combined incomes. The penalty is applied when “partners pay more income tax as a married couple than they would pay as unmarried individuals” and is only applied to couples who file jointly. A couple where only one spouse accounts for the majority of income would thus pay much less in penalties than a couple who makes around the same amount.

Conclusion

Filing taxes is never a fun topic to discuss. It’s not as flashy or as exciting as are other parts of personal finance, like managing a personal investment portfolio. But for those looking to build wealth and maintain financial stability, learning about its nuances is definitely worthwhile. Due to a lack of awareness, many couples treat paying taxes like a chore instead of what it should be seen as — an opportunity to save and avoid unnecessary penalties. In fact, at least 20% of perfectly eligible adults fail to claim the EITC due to a lack of knowledge, missing out on thousands in potential savings. While no two households are exactly the same, benefits do exist for all who make the effort to look for them. 

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Take Home Points

• Married couples have the option of filing taxes through either a separate or joint tax return.
• Filing jointly allows couples to apply for a number of helpful tax credits, such as the Earned Income Tax Credit (EITC), Child and Dependent Care Credit, and Lifetime Learning Credit (LLC).
• The amount of tax credit received often depends on income level and the number of dependents in a household.
• Although filing separately prohibits couples from applying for certain tax credits, it can still be beneficial for particular cases, like for those paying off large student loans via repayment plans or medical expenses. Filing separately can also reduce the marriage penalty.