Filing a joint tax return is generally the better option for a married couple when one spouse earns all or the majority of the taxable income. If both spouses earn taxable income then the couple should calculate their tax liability on joint and separate tax returns to determine the optimal filing status.
A couple’s tax rate will generally be higher if filing separately, but their overall tax liability may be lower. This may be the case when one spouse is allowed to claim certain deductions that would be phased out at higher income levels, such as: employee business expenses, medical expenses, and casualty losses.
There are some restrictions when couples file separate tax returns. For example, Education Credits can only be claimed on a joint return, as can IRA contributions for a nonworking spouse. Also, both spouses must either claim the standard deduction or itemize on Schedule A.
A few benefits are allowed on separate tax returns if you live apart from your spouse for all of or part of the year. Some of these benefits include: the adoption credit, the dependent care credit, the earned income credit, the $25,000 rental loss allowance, and Social Security benefits.