NEW YORK -- Newlyweds who face a "marriage penalty" when they pay their 2002 taxes might think they can avoid the extra cost by filling out their 1040 tax forms as "married filing separately."
Unfortunately, there are only a handful of situations in which filing separately lowers a married couple's tax burden, and couples who file separately forfeit some of the deductions and credits they would be eligible for as joint filers, experts say.
The marriage penalty comes about because of inequities in the U.S. tax code. Couples, especially those where the husband and wife earn about the same amount of money, end up paying more together than they would separately. It's almost impossible to avoid.
"In 26 years, I've had maybe one couple that came out beneficially filing separately," said Alan J. Straus, a certified public accountant in New York. "The marriage penalty is, unfortunately, built into the law."
He added that couples should take maximum advantage of tax-reducing strategies available to all filers, such as pretax funding of 401(k) and Individual Retirement Accounts, and allowable deductions. "There's nothing else out there" to put them on equal footing with singles, he said.
There are, of course, times when married couples file separately despite the extra tax cost. Some husbands and wives believe in keeping their finances completely discrete, down to their income tax filings. And if a marriage is on the rocks, a spouse may have to file a separate return if he or she doesn't have access to the other's financial information.
Even for the happily married, there are times when husbands and wives should at least do the math to determine if filing separately would save them money.
Bob D. Scharin, editor of Practical Tax Strategies, a tax journal published by Warren, Gorham & Lamont/RIA, said filing separately might make sense if one spouse has heavy medical expenses or extensive itemized deductions.
"Medical deductions can be claimed only if they exceed 7.5 percent of adjusted gross income," he noted. "If the couple files a joint return, total income would be looked at even though only one has medical expenses. If they file separately, the 7.5 percent floor would be applied to just the income on the separate return."
A similar situation exists with miscellaneous itemized deductions, which must exceed 2 percent of adjusted gross income, Scharin said.
"If one travels a lot and isn't reimbursed for expenses - say he works on commission - those expenses could add up," he said. "They could be a good write-off if he files separately."
Another reason for a couple to consider filing separate returns is if one suspects the other is engaging in fraud, Scharin said.
"If your spouse is in a cash business but not fully reporting income or if you think he or she is overstating deductions, you may want to consider filing separately," he said. "It may not do wonders for your marriage, but it could save you money."
That's because joint filers are jointly - and individually - responsible for the full amount of taxes, interest and penalties due on a return that's filed jointly.
If you're married but filing separately, it could cost you some deductions and credits, according to "Taxes for Dummies" by Eric Tyson and David J. Silverman.
Among them: You can't take the standard deduction if your spouse itemizes, and vice versa. In most cases, you can't claim the credit for child and dependent care expenses or the credit for adoption expenses or the earned income credit. You can't deduct the interest paid on your student loans, and you can't claim the Hope Scholarship or the Lifetime Learning credits.
U.S. lawmakers have long been aware of the tax inequities that married couples face and have begun to try to reduce them. One target has been the standard deduction, currently at $4,700 for a single person, $7,850 for a married couple filing jointly and $3,925 for a married couple filing separately.
Under the 2001 tax act, the standard deduction for married couples will be raised starting in 2005 until it is twice the level of the single deduction. But that won't be fully phased in until 2009. The law also will widen the 15 percent tax bracket to cover twice the income of a married couple as it does for a single person, but that won't be fully effective until 2008.
The changes won't totally eliminate the marriage penalty, but will help.
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