What Is Your Filing Status? Making Sense Of Married Filing Jointly, Single Or Separate?

Arin V., EA , MBA

Arin is an Enrolled Agent (EA), authorized to represent taxpayers in front of the IRS, and holds a BA and MBA (Management) degree from California State University, Northridge.

The world of international taxation can be fraught with numerous tax forms, tax jargon, compliance requirements, and, as a consequence, pitfalls related to noncompliance. Indeed, given the large number of blog articles on our site, it may appear overwhelming to get everything right (and that’s why you have us by your side!). However, even before getting the small details right with international tax forms such as the FBAR, Form 5471, and others, it is important to ensure that you are filing with the correct (or most beneficial) filing status. Failing to get this right may mean leaving thousands of dollars on the table in lost deductions, credits, and refunds.

Everyone who files a U.S. tax return needs to choose a filing status. There are currently five to choose from: Single, Married Filing Jointly (MFJ), Married Filing Separately (MFS), Head of Household (HOH), and Qualifying Widow-er (QW). 

There are many rules governing filing status and it would be difficult to account for every single scenario or exception here in a brief article. However, some of the basics are:

• To file as Single, you would need to be unmarried, legally separated or divorced on December 31 of the tax year
• To file as either MFJ or MFS, you need to be legally married on December 31 of the tax year
• To file as HOH, you cannot be married (although an exception exists for U.S. persons who have a non-U.S. spouse who does not live in the U.S.), and you would need to be paying at least half the cost of housing and support for others, such as a dependent child

It should be noted that in general, the most beneficial filing status is MFJ. This is because it has the highest standard deduction ($25,100 in tax year 2021), which means that you can deduct a larger amount of your income right away. In comparison, the standard deduction for those filing HOH is $18,800 and for those filing Single or MFS, it is $12,550. Also, if you file MFJ, you have access to credits such as the American Opportunity Credit, Lifetime Learning Credit, and the Child and Dependent Care Credit. Further, filing MFS means you lose out on being able to deduct your student loan interest. Finally, the tax brackets are different for different filing statuses. What does this mean? For instance, those who file Single or MFS and earn $165,000 a year are in the 32 percent federal tax bracket (for tax year 2021), while those who file MFJ and earn $165,000 fall into the 22 percent federal tax bracket. This means that if you file Single or MFS, you will end up paying a greater amount of tax on your earnings than your friends who file MFJ and earn the same amount of income as you. 

One area that trips many expats up is when an American citizen is married to a non-American who is a non-U.S. person for tax purposes (meaning they do not have a U.S. green card and have not spent enough time in the U.S. to meet the substantial presence test). In this scenario, if the couple does not have children or is not claiming any dependents, then the correct filing status for the U.S. person should be Married Filing Separately. Of course, their non-American spouse has no U.S. tax filing obligation in this scenario provided they do not have any U.S.-sourced income. If the U.S. person in this case is claiming a dependent, then the Head of Household should be selected as the filing status, given the higher standard deduction and larger number of deductions and credits available. 

Again, it should be noted that in nearly all scenarios, it is preferable to file Married Filing Jointly or Head of Household, rather than Married Filing Separately. However, there are limited scenarios in which you may want to file separately even if you are married. An example of this is when there are no dependents being claimed, one spouse has a significantly higher income than the other, and the spouse with the much lower income has a large amount of itemized deductions to claim during the year, such as significant medical expenses.  In this scenario, if the couple were to file MFJ, there would be a higher threshold for being able to claim the medical expenses as part of their itemized deductions, and thus, by filing MFS, the spouse with the lower income could take advantage of deducting those medical expenses incurred during the year.

As with many aspects of U.S. tax law, exceptions and rules abound, and so if you have questions about your filing status or would like to receive a second opinion on your filing status, free of charge, please reach out to us today for a no-obligation assessment of your tax situation. One of the worst feelings is finding out that you could have claimed more deductions or received a higher refund, but did not. Please reach out today to ensure you are claiming the correct filing status.