Your Filing Status

Your Filing Status

Why is filing status so important?

Who gets hit by the marriage penalty?

What's better - married filing jointly or married filing separately?

Opportunities for "Heads of Household"

Why is filing status so important?

Filing status determines standard deduction and the point where higher tax rates kick in

Single filers get smallest standard deduction and pay higher taxes on lower amounts of income

Married filing jointly get largest standard deduction and face lower rates than single filers

But, the larger deduction and lower rates afforded to married couple does not overcome the marriage penalty

Who gets hit by the marriage penalty?

Marriage penalty generally applies when both spouses work

	Husband (single)	Wife (single)	Married, joint
Salary	$30,000	$30,000	$60,000
Standard deduction	(3,900)	(3,900)	(6,550)
Exemptions	(2,500)	(2,500)	(5,000)
Taxable income	23,600	23,600	48,450
Tax liability (from table)	3,580	3,580	8,503
Total tax	7,160		8,503

The government rewards your marriage with an additional $1,343 in taxes

Married filing separately will generally yield an even higher marriage penalty

What's better - married filing jointly or married filing separately?

In almost all cases, couples can save by filing jointly

If you file separately you're at a disadvantage in

• child care credit
• IRA deduction
• both must itemize or both must use standard deduction

Only in rare cases does married filing separately save you money

Example : One spouse has a low income and high medical costs

Best strategy

Run the numbers both ways using tax software

Opportunities for a "head of household"

For non-traditional households

Typically used by unmarried people who care for dependent children

Provides larger standard deduction and lower tax rates than for single filers