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With the recently announced Economic Stimulus Payments (rebates), there may be an opportunity for high-income taxpayers who would otherwise be subjected to the phase-out of these payments.
Although married taxpayers will almost always owe a lower tax liability by filing a joint tax return, versus filing two separate tax returns (filing status of "married filing separately"), there are a few instances, just for 2007, where it might be beneficial for a married couple to file separate tax returns.
A couple's combined income may be too high to qualify for the rebate, but when separated, one spouse may qualify for a rebate while the other spouse would not qualify at all. By filing separate tax returns, you will owe a higher tax liability, but the possible increase in rebate amount may be enough to offset the increase in tax liability.
There are too many variables to know every situation where this would be beneficial, but we do know that in the following examples, the married couple does realize a net increase by filing separate tax returns.
For instance, a married couple has a combined adjusted gross income (AGI) of $175,000. Spouse 1 has an AGI of $75,000 and Spouse 2 has an AGI of $100,000. They have no dependents, and they take the standard deduction. If they file a joint tax return they will not qualify for the rebate. However, by filing separate tax returns they will receive a net tax rebate of $587.
In another instance, a married couple has a combined AGI of $185,000. Spouse 1 has an AGI of $75,000 and Spouse 2 has an AGI of $110,000. They have two dependents and they take the standard deduction. By filing a joint tax return they will not qualify for the rebate. However, by filing separate tax returns they will receive a net tax rebate of $833.
For more information about the Economic Stimulus Payments, visit www.irs.gov and click on the link near the top of the page labeled "Rebate Questions?"
Jesse Blackwell is an accountant for Elgee Rehfeld Mertz CPAs.