Love Is in The Air; Don’t Let Taxes Be in Your Way…

 Love Is in The Air; Don’t Let Taxes Be in Your Way…

​For those of us with a Valentine, it’s probably a time to make plans for our loved one.  Taxes may not even come to mind as you look for time to sneak out to get the perfect box of chocolates or to reserve a table at your favorite restaurant.


As I increasingly work with couples on their student loans, one of their common questions is whether they should consider filing separately.  With the implementation of SAVE, our newest income-driven plan, married filing separately (MFS), is becoming a present consideration for married couples. 


This tax season is the first opportunity for most married couples with federal student loans to consider this tax status. While MFS can help you optimize your repayment strategy, let’s explore the intricacies of filing status and how choosing the right approach may benefit your student loan repayment strategy.


Understanding Filing Status: Jointly vs. Separately


Filing Jointly: A Union of Incomes and Deductions:

Filing taxes jointly as a married couple combines both partners’ incomes, potentially placing them in a different tax bracket. This may result in certain tax benefits, such as higher income thresholds for deductions and credits. However, when it comes to student loans, filing jointly means both spouses’ incomes are considered when calculating income-driven repayment plans.


Filing Separately: Preserving Loan Repayment Strategies:

Filing separately can be a strategic move for couples with significant student loan debt. When spouses choose this option, each partner’s income is assessed individually for income-driven repayment plans, potentially leading to lower monthly payments. This separation can be advantageous for those pursuing Public Service Loan Forgiveness (PSLF) or income-driven repayment plans, where lower payments may increase the amount forgiven over time.


The Student Loan Conundrum: Why Filing Separately Makes Sense


Preserving Income-Driven Repayment Plans:

Income-driven repayment plans, such as Income-Based Repayment (IBR) or Saving on a Valuable Education (SAVE), calculate monthly payments based on discretionary income. Filing separately allows each spouse’s income to be assessed independently, potentially resulting in lower monthly payments and maximizing the benefits of income-driven plans.


Protecting Public Service Loan Forgiveness (PSLF):

Couples pursuing PSLF may find that filing separately is essential to optimize their strategy. PSLF requires qualifying payments, and income-driven repayment plans are usually part of the journey. By filing separately, each spouse’s income is considered for calculating payments, ensuring they make qualifying payments for forgiveness.


Considering the Financial Trade-Offs:


Loss of Tax Benefits:

While filing separately may offer advantages for student loan repayment, weighing the potential loss of certain tax benefits is crucial. Couples filing separately may miss out on tax credits and deductions available to those filing jointly, such as the Earned Income Tax Credit (EITC), the Child and Dependent Care Credit, or Student Loan interests.


Complexity of Dual Filings:

Managing separate tax returns adds a layer of complexity and may require additional time and effort. Couples must carefully evaluate whether the potential benefits of student loan repayment outweigh the drawbacks and additional administrative burdens.


Make Informed Decisions


In matters of love, compromise is key, but when it comes to taxes and student loans, informed decisions are paramount. Couples should carefully assess their financial situation, consider their student loan repayment goals, and weigh the advantages and disadvantages of filing jointly or separately. Love may conquer all, but a strategic approach to taxes and student loans can pave the way for financial success and a debt-free future.


Happy Valentine’s!


Contact us if you need help with your student loans and tax planning or preparation. We understand the intricacies of Personal Finances, Student Loan Planning, Taxes, and yes, Love, too.


Rosario Chacón is a Certified Financial Planner™, Certified Student Loan Planner®, and an Enrolled Agent (read more).

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The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

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