Huge difference when comparing filing married separately vs. jointly?

Question

If I file married separately I would owe federal taxes around $6,000 and when filing married jointly federal taxes owed would be $400, how is this possible?

Answer 1

TL;DR version: Don't file separate federal income tax returns unless there are very strong reasons to not file a joint income tax return.

The tax code is structured to encourage married persons to file joint Federal income tax returns (MFJ or Married Filing Jointly) rather than separate tax returns (MFS or Married Filing Separately). Thus, the tax brackets are different, and there are severe restrictions on the numbers in MFS returns as well as cross-connections, e.g. if one spouse itemizes deductions, then so must the other spouse itemize deductions; that is, the standard deduction cannot be taken by the other spouse and his/her deductions are the sum total of all the itemized deductions listed on Schedule A of his/her return, even if that amount is smaller than the standard deduction that he/she would otherwise be entitled to claim. So, yes, the numbers that you claim are well within the realm of possibility, and the difference might even be larger if you take into account the standard versus itemized deduction point as well as the fact that if either spouse is covered by a workplace pension plan, then contributions to a Traditional IRA are not tax-deductible for each of them if that person's Adjusted Gross Income exceeds $10,000, yes $10K, it's not a typo. Also, contributions to a Roth IRA are also forbidden for MFS filers whose individual AGIs exceed $10,000; the MFJ limit is almost nineteen times larger. All in all, it s not a good idea to file MFS instead of MFJ; the parties really get whacked on their taxes.

So, why would people choose to file MFS rather than MFJ? Well, in some cases when a divorce or separation is impending, they may want to file MFS rather than MFJ in spite of the added tax burden. Note also that on a MFJ return, both spouses (i) have to declare under penalty pf perjury that the information provided on the tax return is correct, and (ii) are jointly and severally liable for the tax due meaning that if Matilda takes the money and runs to Venezuela, then Matilda's spouse is liable for the entire tax due. So, if one spouse suspects that the other is reporting false information, he/she may refuse to sign a joint return. Ditto for Matilda's spouse if he/she suspects that he/she might well be left holding the bag.