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Top Reasons to File Separately When Married

When it’s time to complete their tax returns, couples have one big question to answer: married filing jointly or married filing separately?

Just under 5% of the approximately 56 million married couples filed their taxes jointly in 2013, according to IRS statistics. But that doesn’t necessarily mean that filing jointly is right for you every year.

The IRS advises that you and your spouse will “generally” pay less in combined taxes if you file jointly, but it advises couples to figure their taxes both ways to make sure of that.

Just what we all need: Double the aggravation at tax time. You can skip that exercise, if you understand the key differences between the two methods of filing.

You Probably Want to File Jointly…

  • If you have children. Some “miscellaneous” deductions and credits are not ordinarily allowed if you are married, but filing separately. Notably, these include the childcare credit, the deduction for student loan interest, and the credit for adoption expenses. The full list of exclusions can be found here.
  • If one of you earned most or all of the income. Joint filing allows for double the deductions for some expenses, notably for a contribution to a retirement savings account. As a couple, you can reduce your tax bill and boost your retirement income at the same time, if you take full advantage of this doubled deductibility.

You May Want to File Separately…

  • If one of you has unusually high deductible expenses. Some deductible costs, notably the medical expenses deduction, have a “floor.” Say one of you had a huge medical bill that is not covered by your health insurance. You’re owed a deduction of costs that exceed 10% of gross adjusted income, or 7.5% if you’re 65 or older. (These numbers may change in future.) That floor may be within reach on your individual income. Similarly, unreimbursed business expenses can be deducted only if they exceed 2% of adjusted gross income (AGI). If each of you files separately, the spouse with big expenses may qualify for a meaningful deduction, based on that smaller AGI.
  • If each of you earns about the same amount. By filing separately, you may avoid hitting the higher tax rate that might be levied on your doubled income.

You Definitely Want to File Separately…

  • If you don’t trust your spouse! As the IRS points out, by filing jointly you each accept responsibility, legally and financially. Put bluntly, if you suspect your spouse isn’t reporting some income, or might be hit with a big bill for taxes or penalties, consider filing separately. You can ask later for something called “Innocent Spouse Relief,” but there are no guarantees you’ll get it.
  • That goes double if you are separated or in the process of a divorce. The IRS points out that even a court decree in a divorce case might not protect you from their powers to collect taxes and penalties from you in the event that your ex-doesn’t pay up.

There is some icing on the cake, though. As noted above, some childcare credits are “usually” not available to those filing separately. The unusual case, according to the IRS, is separation or divorce.

The Bottom Line

The joint tax return continues to be the preferred choice for most American couples. It is, after all, designed to meet their needs.

A glance at the figures under “Married filing jointly” and “Married filing singly” on the IRS tax tables for 2015 shows that couples filing jointly pay less taxes after their combined taxable income reaches the $9,250 – $9,300 range.

However, if you have a year with an extraordinary event, like a big medical expense or a sudden boost in one partner’s income, you might want to check its impact on your taxes if you file separately.

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6 Ways the IRS Can Seize Your Tax Refund

Haven’t receive yet your income tax refunds this year? Then here is some reason why is delayed: The government could have seized it. The U.S Treasury Departments Bureau may be holding back your refund or it might be that part of your refund cover some part of a debts you may owe.

6 Debts That Can Make the IRS Seize Your Tax Refund

Here are the 6 major kinds of personal debts that can result in a tax refund offset, along with some advice about what you can do if it ever happens to you.

• Federal Income Taxes – If you owe back income taxes, your refund can be taken to pay them. Whatever is left, if anything, will be refunded to you in the way you requested on your tax return, either by direct deposit or check. You should also get a notice from the IRS explaining why the money was withheld. If you believe that a mistake was made, you will need to take it up with the IRS.

• State Income Taxes – The feds can also withhold money from your tax refund to cover unpaid state income taxes.

• State Unemployment Compensation – If your state believes you collected more in unemployment compensation than you were entitled to, either due to outright fraud or to a failure to properly report your earnings, it can also ask the U.S. Treasury to offset your tax refund.

• Student Loans – If you defaulted on a federally insured student loan, the government can seize your tax refund to help repay it. The Treasury Department is required to send you advance notice as well as to provide an opportunity for you to challenge the claim or pay it off before your refund is withheld. Your state could also withhold money from your state tax refund for this purpose. In addition, the U.S. Department of Education, or the guaranty agency that holds your loan, has the authority to order your employer to withhold up to 15% of your disposable income until the defaulted loan is paid off. You can learn more about dealing with defaulted student debt here.

• Child Support – When parents become delinquent in paying court-ordered child support, their state’s child-support agency can request that the Treasury Department withhold money from their tax refund to cover the back payments. People in this situation should receive a pre-offset notice explaining how much they owe, how the offset process works, and how to contest the debt. Once the money has been withheld from their refund, they should also receive an offset notice from the Bureau of the Fiscal Service showing how much money it withheld and referring them back to the state child-support agency if they have further questions.

• Spousal Support – Similarly, an award for spousal support that’s part of a child-support order can also result in a tax-refund offset if those payments are overdue.

Note that if you filed a joint tax return with your spouse, and your refund was offset because of debts belonging only to your spouse, you can request your portion of the refund back from the IRS. The claim form goes by the somewhat confusing name of Injured Spouse Allocation (IRS Form 8379) and can be found online.
Bear in mind, too, that your tax refund isn’t the only leverage the Treasury can use to collect on back debts such as the ones listed above. Your Social Security or Social Security Disability Insurance (SSDI) benefits can be garnished (that is, partially withheld) in some instances. However, supplemental security income cannot be garnished, even by the government.

The Bottom Line

If you have certain kinds of unpaid debts – such as federal or state taxes, child or spousal support, a student loan that’s in default, or unemployment compensation to which you were not entitled – the U.S. Treasury can hold back all or part of your income tax refund to help pay them off. The practice is known as an offset, and it certainly leads to upset, so try not to let it happen to you

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