Married filing jointly vs separately in retirement

The households

Two retired couples, everyone 67, with no wages, no state income tax in the comparison, and each spouse’s income in their own name. In the first couple one has $30,000 of Social Security and $40,000 of IRA withdrawals; the other has $20,000 of Social Security and $25,000 of IRA withdrawals. In the second, nearly everything is in one name: one has $36,000 of Social Security and $90,000 of IRA withdrawals; the other has $12,000 of Social Security and nothing else. Each couple’s federal tax is computed on one joint return and on two separate returns, with the same tax function the simulator uses, and the separate returns assume the spouses lived together during the year.

Side by side

Couple 1 pays $6,704 jointly and $8,144 on two separate returns: filing separately costs $1,440 more.

Couple 2 pays $9,500 jointly and $17,339 separately, a difference of $7,839.

Why the separate returns cost more here

• Social Security. On a separate return by a spouse who lived with the other spouse, the base amounts for taxable benefits are $0, so up to 85% of benefits is taxable from the first dollar^[1]. It matters little for these two couples, whose joint returns already reach or approach the 85% cap: couple 1’s taxable benefits are $42,500 jointly and $42,500 separately, couple 2’s $40,800 and $35,700. It matters a great deal at lower incomes: if couple 1 withdrew only $15,000 from their IRAs, their taxable benefits would be $4,000 on a joint return but $34,000 on separate returns, and federal tax $0 against $1,372.
• The senior deduction. A married person must file jointly to claim it^[2], so both couples lose $12,000 of deductions.
• Brackets. Separate-return brackets are half the joint ones up to the top rates^[6]. When incomes are similar that costs little; when one spouse has most of the income, as in couple 2, that spouse’s income climbs into higher brackets while the other’s deduction partly goes unused.
• Medicare surcharges and marketplace credits (not in the tax figures above). For Medicare’s income-related premiums, a separate filer who lived with the spouse uses a separate table whose first surcharge starts above $109,000 and jumps straight to the second-highest level, against a first joint threshold of $218,000^[4]. Before Medicare, the marketplace premium tax credit is generally not allowed on a married-filing-separately return^[5].

When each tends to come out ahead

For retirees whose income is pensions, IRA withdrawals and Social Security, the joint return usually comes out ahead, as it does for both couples here. Separate returns can tax more of the benefits (not for these two couples, but sharply at lower incomes), they give up the senior deduction and, when incomes differ, they waste the lower earner’s brackets. The IRS itself notes that couples generally pay more combined tax on separate returns, and suggests figuring the tax both ways when both spouses have income^[3]. Separate returns can still be worth it for reasons this comparison does not model: they keep each spouse responsible only for their own tax^[3], and itemized deductions that are limited by a share of income can go further on the return with the lower income. They also come with restrictions the IRS lists in full, including that if one spouse itemizes, the other cannot take the standard deduction^[3].

What this comparison leaves out

• Itemized deductions and credits, and how they split between separate returns.
• Community-property states, where income may be split by law rather than by name.
• Spouses who lived apart all year, who use the single Social Security amounts.
• State income tax, which has its own rules for separate returns.

Related

• Guide: The Social Security tax torpedo
• Guide: The many MAGIs: one income, five different tests
• Calculator: Social Security tax calculator
• Calculator: IRMAA calculator
• Topic: Taxes in retirement
• All comparisons
• Worked examples, line by line