Financial Freedom Insights: Issue 5

If one Spouse Has Significant Medical Expenses

If one of you has significant out-of-pocket medical expenses, filing separately might be a good idea. The IRS rules that unreimbursed, qualified medical expenses must exceed 7.5% of your adjusted gross income (AGI) to be deductible on 2025 federal income taxes. If one of you meet that criteria, think about filing separately.

What is your AGI? It is your total gross income (individually) minus specific "above-the-line" deductions, such as student loan interest, IRA contributions, or educator expenses. It is how the IRS determines your taxable income and eligibility for various tax credits and deductions. 

If a Spouse Has Income-Driven Student Loans

Your student loan is income-driven if it is part of a Federal Student Aid (.gov) program for federal student loans. The program caps monthly payments at a percentage of your discretionary income (usually 10 to 20%) rather than the loan balance.

If you file taxes jointly, the calculation for your monthly student loan payments will be based on your combined income. However, if you file separately only your income will be used, and your loan payment will be lower.

If a Spouse Has Existing Debt

One spouse might have existing tax debt or other debt such as student loans or child support. If you file separately in these cases, the spouse without the debt can protect any tax return they might be due.

If the spouses were to file jointly, they would both be liable for the debt, and the IRS might apply the combined refund to the debt of the one spouse. In cases of legal separation or divorce, filing separately makes the most sense where one spouse has debt.

Reasons You Shouldn’t File Separately

For tax year 2025, the standard deduction is $15,750. For tax year 2026, the standard deduction is $16,100 for married couples filing separately.[3]

If you do file separately, remember that if one of you itemizes deductions on Schedule A, both of you will have to itemize deductions on your own, separate Schedule A.

Also, you’ll have to decide who deducts what. That can become complicated for deductions you are both affected by, such as mortgage interest.

The biggest drawback to filing separately is that you may be disqualified from some income tax credits and deductions, which will raise your tax bill. Those credits and deductions include the following:

If you are legally separated, you might still be eligible for these credits.

How Do Spouses File Separately?

Here’s how you fill out the tax return if you file separately.

·         Each spouse files their own Form 1040.

·         For the box that indicates filing status, each spouse checks “Married Filing Separately.”

·         Under dependents, each child can appear on only one of the spouse’s tax returns.

If there are multiple children, let’s say three for example, one parent can claim one as a dependent and the other spouse can claim two.

If you are separated, the child is generally claimed by the custodial parent or the parent that the child lived with for the greater part of the tax year. If the child lived with both parents equally, the parent with the higher AGI typically claims the child.

One thing to note here is that filing separately might disqualify a spouse from the earned income credit or child and dependent care credit depending on the income of that spouse.

·         Each spouse reports only their own income, deductions, and credits on Form 1040.

Although using separate forms, both spouses must use the same deduction method. They can either itemize their deductions or take the standard deduction.

Seek Professional Tax Advice

The best way to decide whether to file separately or not is to do the calculations for filing joint and filing separately and see which option makes the most sense. You can use tax software to prepare your tax return, and some software application will do the calculation and provide a recommendation. 

Also, the above are general guidelines only. Exceptions may exist in your particular case, so consult a tax expert to see what makes sense for you and the IRS rules you can leverage.

FAQs

If we file separately, how do we sort out the deductions. Do we split them 50/50?

It’s best to take the deductions based on who paid the expenses rather than splitting everything 50/50 on the two 1040 forms. However, for joint expense, like the mortgage or property tax, you can split them evenly or based on each person’s pay ratio.  There are also two ways to take deductions, to itemize them or to take a standard deduction. Both spouses must choose the same method.

Does filing separately usually mean paying less tax overall?

Filing separately can help in some circumstances and lower a spouse’s tax liability, but it also means losing some credits and deductions. It’s best to try both ways and do the calculations to see which method leaves you better off.

Can you choose a different method from year to year?

Yes. You can choose whichever method works best each year. You also have three years to change a separate filing to a joint filing. However, amending a joint filing to a separate filing is more difficult.

How does each spouse claim children as dependents when filing separately?
Each child can only be claimed once on one spouse’s tax return, and usually by the custodial parent. Usually, the parent with the higher adjusted gross income (AGI) typically claims the dependent.

What tax credits might we lose if we file separately?
Losing credits is one reason why it might not pay to file separately. You might lose the earned income credit, education credits, child and dependent care credits, adoption credits, and the student loan interest deduction.

Does filing separately protect one spouse from the other spouse’s tax and debt problems?
Usually, yes. Filing separately generally means each spouse is responsible only for their own tax liability. It can protect a spouse’s refund and income from being used to pay the other spouse’s financial obligations. However, both spouses are still responsible for jointly held debt other than taxes.

Sources

[1] Internal Revenue Service, “IRS releases tax inflation adjustments for tax year 2025,”

https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025. Accessed February 4, 2026.

[2] Internal Revenue Service, “IRS releases tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful Bill,” https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill. Accessed February 4, 2026.

[3] Internal Revenue Service, “IRS releases tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful Bill,” https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill. Accessed February 4, 2026.