Tax Question for Stay at Home Parents (married filing jointly vs separate)

[s2242]

This is a pretty specific situation but I can't imagine that I'm the only one in this boat. I tried google-ing different combinations but I just couldnt find any helpful information and this is the last resort before going and meeting with a tax accountant person (that's what they're called right?)

The issue centers around student loans and our two vastly different incomes.

I have been a stay at home dad since our son was born (so we've had two tax years with him) and for the majority of that time I have not worked.
I worked the first 6 months of his life BEFORE we were married. So I was qualifying for $0.00 monthly payments toward my student loans (I have like 40k...because I was 17 years old and signed my life away without truly understanding the gravity of being in debt the rest of my life...anyway...) because my income was so low ( 9.60/hr at a thrift store on the weekends working like 15hrs a week.)

Six months later we have moved to Texas, I stopped working on the weekends, and ended up getting married. It was great! What an exciting thing...until, with me NOT working, I had to edit my information with the student loan folks concerning my 12 month income based because we got married and my 0.00 monthly payment went up to 120.00/month. Sweet! How impossible!!

I have applied for multiple payment plan options and have been getting denied and 120 is the lowest they will go. Because now its based on BOTH of our incomes.

My method since then has been to merely make one payment every 270 days so as to not allow my loans to go into default (oh i forgot to mention...we're social workers so we're pretty much broke and thats the primary reason I stay at home with my son so as to save money on childcare these first few years) but it still hurts my credit.

We budget pretty well and dont have anything other than Internet. I sell plasma twice a week and I now have a weekend job again and between car insurance, car payment, rent, utilities, groceries, credit card payments etc...we could make the 120.00 payments (for the next 30 years) but have nothing left over. Nothing for savings, fun, etc. It isnt working obviously.

When applying for these different repayment plans you select if you filed jointly or separately. And I am pretty sure if I selected Filed Separately then my bill would go back down to $0.00 because I am working like 14hrs a week at 10.00/hr.

So I am wondering if anyone has been in this situation and solved it by filing separately.
I know you get tax breaks for filing jointly, but we only get like 1200 back from taxes anyway and I think most of that comes from the tax break of having a child rather than the married credit.

If you have read this thanks so much and I know that most likely we just need to go talk to someone about the situation and we will, but I wanted to see if anyone else has gone through a similar situation. Thank you

(OH! and if we do end up filing separately, because I make less than $7,000.00 how does that work? If I was single I dont think I would even have to file, right? I know on my paystubs Federal income tax isnt being taken out. Social Security etc is, but not federal tax income)

 

[katrina2017]

@s2242 We file separately because I have high student loans. If you file separately, the student loan payments will be based on your income only. However, there's certain tax credits you can't take advantage of if you file separately ("such as the credit for child and dependent care expenses, the earned income credit, the adoption credit, education credits and the deduction for student loan interest"). This article explains it: https://www.nerdwallet.com/blog/taxes/file-taxes-jointly-separately-return/

 

[s2242]

@katrina2017 Thank you!

 

[jomarie]

@s2242 You can only file separately if you have income, and the tax burden (amount you get back) will likely be more than the $120/month you would be paying. My husband and I have looked into it so many times and it only really makes sense if you both earn more than 80k/year.

 

[s2242]

@jomarie Lol yeah, wife makes 40k and i work only on the weekends and raise my son during the week. We're probably at 46k a year

 

[jomarie]

@s2242 We are at 68k combined both working full time, but my husband has passive income and it kills us every year. I looked into filing separately and it unfortunately didn’t make any sense to do so. You can always ask a tax professional - but they charge about 300 to answer you unfortunately.

 

[jomarie]

@s2242 Another option is contacting your lender directly. They may be able to offer you a better repayment than the automated system. I pay $50/month on my student loans and my husband pays $75/month even though he owes a ton because he called and asked.

 

[s2242]

@jomarie I can try that. I did speak to someone last week about it all and he was very unhelpful and wasn't understanding why i cant afford to pay it.
I think i could live with 50-100 payments. My wife is continuing education and money has gone into that (like a computer etc) so left over money is being used for that. We cant claim it as education cost because tuition is being covered by AmeriCorps ed awards. Its a whole buncha specific things going on at once hah.
We havent yet seen the benefit of me working on the weekends (started end of Feb) because we moved two weeks later and rent/utilities was increased from 1175 to 1385 but with a 2 yo our other super tiny apt in the hood wasnt gonna cut it anymore. And then after the move it was saving to pay for school stuff lol

But once july hits we'll have a more manageable budget from which a student loan payment could come from. I mean- who can set aside money for savings when you have those poor student loan companies just starving out there. Cold and alone with nothing but outrageous interest rates to warm them lol.

God save us all

At least its friday...?
(Oh shit... its not lol)

 

[kellyomara]

@s2242 You can do married filing separately, but the only way to know how well its going to work for you is to run the numbers both ways come tax time. Since 2019 tax time isn't until nearly 1 year from now, you also have the option of amending your guys 2018 returns to file separately.

Here's the catch with how MFS works though - normally, you guys probably take your return, add up both of your incomes, you guys probably take the standard deduction (especially now), and then your child tax credit and all that. When you file separately, only ONE of you gets to take the standard deduction. The other MUST itemize. If you don't own a house, have extremely high medical expenses, or significant charitable deductions, this is going to be a very small amount. So, your wife is more likely than not going to want to take the standard deduction, and you itemize. Now, luckily, your income is pretty low to begin with so tax on $7,000 is still going to be around only $700 on your federal return. This might be a case where MFS actually does work out for you.

Once you do that, if you apply for income-based repayment, you should get a very low, if not zero, payment again.

 

[kentheframer]

@s2242 I don't know enough about how student loan repayment works to comment on that, so I'll stick to what I know.

So I am wondering if anyone has been in this situation and solved it by filing separately. I know you get tax breaks for filing jointly, but we only get like 1200 back from taxes anyway and I think most of that comes from the tax break of having a child rather than the married credit.

This isn't exactly true. Filing status determines your income, which determines your marginal tax rate (tax bracket). It also determines how much you take for the standard deduction; currently it's 12k filing single, 18k Head of Household, and 24k married-jointly. There's no real "tax break" per se for filing jointly.

The child tax credit is a very real thing, and may be responsible for your refund, although it's hard to say without knowing more about your situation. It's somewhat weird though; the base credit is non-refundable, however there is also an Additional Child Tax Credit (CTC) which allows for it to provide a refund in the instance that you are in a negative income tax situation due to the CTC.

(OH! and if we do end up filing separately, because I make less than $7,000.00 how does that work? If I was single I dont think I would even have to file, right? I know on my paystubs Federal income tax isnt being taken out. Social Security etc is, but not federal tax income

You would have to file. Because you'd be filing as married, separately, the income floor for requirement to file is $5, rather than the standard deduction amount of $12,000 for under 65 filers.

If you have read this thanks so much and I know that most likely we just need to go talk to someone about the situation and we will, but I wanted to see if anyone else has gone through a similar situation.

This is definitely the case. I would point out that you'll want to talk to an actual tax professional. Skip places like H&R Block, because even though they should have an actual accountant on staff, the majority of employees there are tax preparers, not professionals.

 

[s2242]

@kentheframer Thank you its especially good to know that about HR block cuz i had no idea