Prior to the year 2001, more married couples were charged a marriage penalty when they filed their income taxes. A marriage penalty is applied when a couple pays more in income taxes than they would have as single individuals.
Changes to the federal income tax laws, however, have made marriage penalties less common. Some couples, in fact, experience a marriage bonus when filing jointly.
A married couple may file jointly, even if one of the spouses is not employed. If one spouse earns significantly higher income than the other spouse, a joint tax return may lower the couple’s income tax bracket.
In addition, certain tax deductions and credits will not be available if couples file separate tax returns, including the:
- Earned Income Credit,
- American Opportunity Credit,
- Lifetime Learning Credit,
- Education Credits,
- Child and Dependent Care Credit, and
- The exclusion or credit for adoption expenses.
These types of tax credits and deductions can significantly reduce the amount of income tax an individual owes. Because of these reasons, many couples benefit from filing a joint tax return.
It also takes less time to complete a joint tax return and the couple may save on tax preparation fees since they are only required to submit one Form 1040.
How Does a Couple File a Joint Tax Return?
A tax return typically begins with IRS Form 1040. Regardless of whether an individual is filing jointly or separately, they will be required to complete this form.
When filing, the couple will be required to provide documentation of their:
- Income: Typically with W-2 and 1099 forms; and
- Exemptions, credits and deductions: For example, a Form 1098 for the mortgage interest deduction.
Both individuals are required to sign the joint tax return to certify the accuracy of the filing and to make each individual equally responsible for the taxes which are owed. The IRS does not accept joint tax returns, and therefore does not issue refunds, unless both spouses sign the return.
When Should I Not File a Joint Tax Return?
For the majority of married couples, the joint tax return is their best option. There are, however, some circumstances in which separate returns may be advantageous, such as when one spouse has significant medical bills.
The IRS provides financial thresholds a taxpayer must meet prior to deducting medical expenses. Medical expenses can be deducted if the expenses exceed 10% of the taxpayer’s adjusted gross income.
If both spouses are both high earners, it may be difficult to reach the 10% threshold as a couple. Also, unreimbursed employee expenses, including business travel expenses and union dues, have a 2% adjusted gross income threshold.
An individual may also want to file separate tax returns if they are concerned about their spouse’s tax return. As noted above, both spouses are required to sign the joint tax return.
Their signatures make both spouses equally responsible for paying all of the tax payments and penalties. If an individual is concerned about the legality of their spouse’s tax filing, they should consider filing a separate tax return.
Because the individual did not sign their spouse’s separate return, they will not be liable for any payments or penalties.
Why Should I Claim Someone as a Dependent?
If an individual claims a dependent on their tax return, it can make a significant financial difference in what they own in taxes or what is owed to them. Having just one child can take $4,050 off an individual’s taxable income.
It is important to note that children are not the only individuals who can be claimed as dependents. In addition to children, relatives may also be claimed as dependents in certain situations.
If an individual cares for children and other relatives, it may involve numerous expenses, including:
- Medical care;
- Childcare; and
- Deductions for familial issues.
If an individual has more than one dependent, their savings may be significant.
Who Can be a Dependent?
Attempting to determine who may be claimed as a dependent may be tricky. As noted above, qualifying children and relatives may be claimed as dependents.
In certain situations, a child may qualify as a dependent of more than one individual, but only one individual is permitted to claim the child. There are five tests which narrow down which taxpayer should claim the child as their qualifying dependent:
- Relationship test: A child must be the individual’s:
- son;
- daughter;
- stepchild;
- foster child; or
- a descendant of any of them, for example, a grandchild; or
- The child must be the individual’s:
- brother;
- sister;
- half sister;
- half brother;
- stepbrother; stepsister; or
- a descendant of any of them, such as a nephew or niece;
- Adopted children who have been placed with an individual for legal adoption are always treated as their own, as are foster children;
- Age test: A child must meet one of the following:
- be under age 19;
- younger than the individual; and
- if filing jointly, the child must also be younger than the individual’s spouse;
- a child must be a student under the age of 24 at the year’s end and younger than the
- individual or their spouse; or
- the child must be permanently and totally disabled, regardless of their age;
- Residency test: There are many exceptions to this test and, therefore, it may be helpful to consult with a tax attorney to determine eligibility;
- In general, the child must have resided with the individual for more than half of the year.
- Exceptions include:
- temporary absences;
- children who were born or died during that year;
- kidnapped children; and
- children of separated or divorced parents;
- Support test: The child could not have supported themselves for more than half the year; and
- Joint Return test: The child cannot file a joint tax return for the year, but there is an exception that an attorney can discuss with a taxpayer.
In some cases, a child may meet all five tests to be a qualified child of more than one individual. However, only one individual is permitted to claim the child as a dependent.
For a qualifying relative, there are four tests that an individual is required to meet in order to be a qualifying relative, including:
- Not a qualifying child test: If the child is already a qualifying child, they cannot be the individual’s qualifying relative;
- Member of household or relationship test: The relative must either live with the taxpayer for the entire year, or be related to them as outlined on the IRS website. If this relative was the individual’s spouse at any point during the year, they cannot be a qualifying relative;
- Gross income test: The relatives’s gross income for the year must be less than $4,050; and
- Support test: The taxpayer must have provided over half of the relative’s total support for the year.
The taxpayer must be able to provide the social security number (SSN) of any individual they are claiming as a dependent. If the dependent does not have a SSN, the taxpayer must show the individual’s taxpayer identification number (ITIN) or adoption taxpayer identification number (ATIN) to the IRS.
Similar to the qualifying child, only one taxpayer can claim the relative dependent. That dependent is not permitted to file a joint tax return with any other individual.
Do I Need an Attorney?
Tax laws are very complex. If you have any issues, questions, or concerns regarding who you may be able to claim as a dependent, it may be helpful to consult with a tax attorney. Your attorney can advise you of the laws which apply to your tax return as well as how to get the most out of your tax return.
In addition, you may be able to claim the costs of consulting a tax professional as well as the cost of having your taxes professionally prepared.
