Filing Jointly: Special Concerns

If you are legally married, you must file a joint federal income tax return unless you choose to file separately. This rule applies to both opposite sex- and same-sex married persons. There are certain issues that you should consider in deciding which filing status—jointly or separately—to use.

1.     Signing the return

Usually, in order for a joint return to be treated as a valid tax return, both spouses must sign the form. Instructions to Form 1040 say that if it is a joint return, then both spouses must sign.

What happens if only one spouse signed the joint return? Take this recent case: A couple that had been married since 1988, had their joint return for 2000 prepared by a CPA. The husband signed the return and put it in a bin used for documents requiring the wife’s signature. The next day he took the form from the bin and mailed it without noticing that the wife had never signed it. The IRS sent the return back to them because the wife’s signature was missing. In 2002 the IRS sent a delinquency notice saying it never received the 2000 return. The couple submitted a second one to the IRS, which both signed. However, the couple did not attach an explanation about what had happened with the original return and the IRS treated the second return as their original return for 2000.  Later, when the IRS audited them for several years including 2000, the statute of limitations and the validity of the joint return became an issue. The couple argued before the Tax Court that the original return was a valid joint return despite omission of the wife’s signature (they were in substantial compliance with the law); the second return was merely a copy. Also, they intended the original return to be a joint return, as that had always been their practice (they satisfied the tacit consent doctrine).

The court rejected both arguments. The original return was not a valid joint return because it lacked the wife’s signature. The couple could not be in substantial compliance without the wife’s signature. The tacit consent document only applies for determining whether a joint return was intended, and not whether the return is signed. Thus, the 2000 return was invalid until it was resubmitted with both signatures (Reifler, TC Memo 2015-199).

Note: If one spouse is unable to sign a return because of incapacity but wants to file jointly, the other spouse can sign the incapacitated-spouse’s name, followed by the words “By (signer’s name), Husband (or Wife).”  Alternatively, if one spouse is unavailable (e.g., out of the country), the other can sign if the absent-spouse has given power of attorney for this purpose.

2.     Joint and several liability

Spouses who file joint tax returns are jointly and severally liable for the tax, interest, and penalties on the joint returns. This means that the IRS can seek a recovery of the full unpaid liability from either spouse.

One spouse may be able to escape liability by claiming innocent spouse relief. This relief is not automatic; a spouse must file for it and be eligible.

If one spouse has any concerns about what the other is reporting, or not reporting, on a return, it is advisable not to file jointly.

3.     Tax limitations

Usually, married persons who file separately will pay a combined tax bill that’s higher than the one resulting from a joint return. This is because a number of tax limits and rules for married persons filing separately are unfavorable (for example, the tax brackets above 15% for persons who file separately).

In some cases, tax breaks cannot be claimed by married persons who file separately. Examples:

• Education credits
• Premium tax credit (unless one spouse is a victim of domestic abuse)
• Student loan interest deduction
• Deduction for contributions to a spousal IRA

Also, 85% of Social Security benefits for those filing separately are includible in gross income, regardless of the amount of other income. And there are other restrictions or limits that are unfavorable to those who file separately. However, there are situations where filing separately may prove to be the better choice for tax savings.

Conclusion

Filing status is one of the most basic tax rules, yet joint filers continue to face complexity. It is advisable each year to consider the options—joint or separately filing—each year and chose the status that meets your needs. The status used in the prior year does not control the one for the current year (assuming the couple remains married).