How to Navigate Filing Your First Joint Income Tax Return

It’s that time of the year again. The tax deadline is a little less than a month away Remember that the deadline is April 18th this year because April 15th is a federal holiday.  And with the explosion in same-sex marriages, this may likely be your first year filing a joint return.

Being the tax nerd that I am, filing a joint return was one of the most significant signs that my new marriage was a reality. As a married couple, you must file either a Married Filing Jointly (MFJ) return or Married Filing Separately (MFS) (with the exception of filing Head of Household if you’ve lived apart for the last half of the year and have a dependent).  In the end, nothing says married like having to file a joint income tax return.

I’ve already received questions about some of the nuances of filing a joint return, so today I want to cover some of those questions and how to navigate the different issues as you file for the first time.

What is the Marriage Penalty or Bonus?

I’ve already written quite a bit on the marriage penalty and the marriage bonus, so I won’t rehash everything now. It’s the most common tax issue that comes up when a married couple deals with their taxes for the first time. In short, you may incur a bonus (i.e., lower tax liability) by combining two incomes or you incur a penalty (i.e., higher tax liability) when combining your incomes. The determining factor usually rests on the similarities in income. The closer the incomes, the more likely you will incur the penalty. The more disparate the incomes, the more likely you will get a bonus.

Below is a simple example of how the bonus and penalty plays out on $100,000 of income for 2015. This example assumes taking the standard deduction and not having dependents. The impact also changes the more income and deductions that you have.

Tax Impact on Combined $100,000 Salary for Married Couples

100% income earned by one spouse

  • Tax due when filing MFJ – $11,438
  • Tax due if filing separate, individual returns –  $18,219
  • Difference in total tax – $6,781

90%/10% Split

  • Tax due when filing MFJ – $11,438
  • Tax due if filing separate, individual returns – $15,351
  • Difference in total tax – $3,913

80%/20% Split

  • Tax due when filing MFJ – $11,438
  • Tax due if filing separate, individual returns – $14,213
  • Difference in total tax – $2,775

70%/30% Split

  • Tax due when filing MFJ – $11,438
  • Tax due if filing separate, individual returns – $13,213
  • Difference in total tax – $1,775

60%/40% Split

  • Tax due when filing MFJ – $11,438
  • Tax due if filing separate, individual returns – $12,213
  • Difference in total tax – $775

50% 50% Split

  • Tax due when filing MFJ – $11,438
  • Tax due if filing separate, individual returns – $11, 438
  • Difference – $0

Why Not Just File Married Filing Separately if You Incur a Penalty?

I also received a very astute question from a reader who found out that he and his wife will incur the marriage penalty.  They itemize their deductions, instead of taking the standard deduction, so he thought they would be better off filing separately with him taking all of the itemized deductions on his return and his wife taking the standard deduction on hers.

Unfortunately, it doesn’t quite work that way.

If you decide to file Married Filing Separately, you both have to take the same type of allowable deduction. In other words, if one spouse decides to itemize and take all of the deductions, the other spouse still has to itemize as well, even if his or her itemized deductions are lower than the standard deduction.

In addition, you may limit or lose some important credits like the child and dependent care credit, the adoption credit and the Education Credits (American Opportunity or Lifetime Learning) by filing separately.

Most of the time, it’s going to benefit you to file jointly.  So make sure you carefully consider and discuss with your tax preparer whether filing separately is right for you.

What if My Spouse Has a Tax Problem?

One good reason that a married couple wouldn’t file jointly would be if one spouse owes back taxes. For instance, if you have a spouse that is self-employed and owes for several back years because he or she didn’t pay estimated tax payments, you may have any current joint refund obtained applied to that debt. In this situation, it might be more advantageous, despite paying more total tax by filing separately, to do so to keep more money in your pocket.

There is another way around this issue as well. If you know that your spouse has a tax problem, but you still want to file a joint return, you can file form 8379 Injured Spouse Allocation with the return (or after if you realized too late) to have the non-liable spouse’s portion of the tax refund given back to him or her. This way you still get any potential bonus of filing jointly and get to keep some of your refund. You can even do this in community property states where each spouse is entitled to half of their spouse’s income.

Keep in mind that injured spouse is different from innocent spouse. Innocent spouse relief relieves a spouse from responsibility for paying tax, interest, and penalties, if his or her spouse (or former spouse) improperly reported items or omitted items on your tax return. The rule for this get a bit sticky because of knowledge requirements, so I will leave the details on this for another post. I just want to point out that these are not the same thing and require different forms and procedures.

Can We File Amended Returns?

Lastly, I want to cover a topic that specifically applies to same-sex couples who may have been married before the Supreme Court outlawed same-sex marriage bans.  After Windsor, the federal government recognized union as of the date you were married, as long as it was performed in a state that recognized your marriage (despite whether you live in one that recognized the marriage). This recognition allows couples to go back and amend their returns as joint filers. For those couples, they have the option, not obligation, to amend their prior year returns. In other words, you could amend your returns to a joint filing and maybe take advantage of a marriage bonus.

The rules for amending your tax return are pretty straight forward. You can only claim a credit or a refund within three years from the due date or from two years from when the tax is paid. Therefore, if you were married in 2010, as of October of 2013, you could amend your 2010, 2011, and 2012 tax returns. Unfortunately, if you are just reading this rule now in 2016, you’ve lost the advantage of filing your 2010 and 2011, unless you qualify for the second prong of the test. You can meet the second prong if you owed back taxes and made a payment within the last two years. For example, if you owed on 2010, but you just now paid the balance, you could still go back and file the return for a refund if it benefits you.

The form you need to amend your return is the 1040x. You will need to provide this form plus a correct 1040 return when you file. Additionally, you can’t efile this form, you have to mail it. Because of a time restrictions on getting a refund or credit, you have to hop on this situation right away, if this has happened to you. You should also consult a tax professional to make sure you have covered all of your bases in filing the right forms. The IRS is taking an extraordinarily long time when processing these returns, so its best to have all of your Is dotted and Ts crossed when they finally review it.

For future reference, there are a couple of different nuances when it comes filing amended returns for married taxpayers. You have three years to amend a tax return if you want to go from Married Filing Separately to Married Filing Jointly. However, you can’t ever amend from Married Filing Jointly to Married Filing Separately if the due date for the return has passed. I’m not sure why this rule exists, but it is the law of the land at this point. So make sure you understand that when filing.

I hope that overview was helpful in giving you foundational knowledge for filing a joint return. Filing the return can be tricky, so make sure to consult your tax professional if you have additional questions about your return. Happy filing!