A couple of weeks ago I wrote a post about whether or not a married couple can choose to file a separate return where one spouse claims the other spouse as a dependent.
The answer is yes, if the spouse being claimed as a dependent:
- Has no gross income, and
- Isn’t filing a tax return, and
- Isn’t a dependent of any other taxpayer
That post turned out to be popular and has generated a lot of interest from tax pros. One of the questions I’ve received is: what does item #1, “has no gross income,” mean?
As I think about this more, I think item 1 is going to be a major hangup for any married couple trying to do this in real life.
SSDI and MFS
In almost all situations where one spouse asks about claiming the other spouse as a dependent, the “other spouse” is on disability. And here’s where it gets tricky with the “no gross income” requirement.
I believe, if the “other spouse” is on disability, you’d have to calculate how much of that spouse’s SSDI would be counted as “gross income” on a married filing separately tax return. And this would likely blow the entire scheme.
Let’s look at an example, using the IRS’s worksheet for taxable Social Security benefits. Let’s say the spouse in this situation has $5,000 of SSDI for the year.
- 1/2 of total SSDI = $2,500
- Other income = $0
- Adjustments to income = $0
- Total SSDI used in this calculation = $2,500
- Threshold amount: normally $25,000 for a single person or $32,000 for a married filing jointly — but if married filing separately and the taxpayer lived with their spouse at any time during the year, the threshold amount is $0!
- The bottom line here is, this person would have $2,500 of SSDI that would potentially be includable in AGI, i.e. they would have “gross income.”
- This would seem to blow apart the possibility of this person’s spouse claiming them as a dependent, because this person does in fact have “gross income” and thus they fail the first test further above about having “no gross income.”
- Note that the tests for claiming a spouse are different from the normal dependency exemption tests, so in this example it seems to be irrelevant that the spouse’s gross income of $2,500 is below the normal threshold ($4,050 for 2017 tax returns) for claiming someone as a dependent.
What Does It All Mean
I think the takeaway for anyone wondering if they can claim their spouse as a dependent on a tax return is: yes this would work if your spouse is unemployed and has absolutely no income. So a homemaker or stay-at-home parent. If your spouse is on disability, it would seem not to work, based on the “gross income” rule explained above.
Note that this doesn’t mean they couldn’t file separate tax returns, it just means the higher-income spouse likely wouldn’t be able to claim the disabled spouse as a dependent.
The typical reasons why married couples in this situation consider things such as separate returns and one spouse claiming the other as a dependent usually revolve around wanting to protect the disabled spouse from the tax debts of the other spouse, or for things such as income-based repayment on student loans.
Using our example above of a spouse with $5,000 of SSDI, that person’s spouse wouldn’t be able to claim them as a dependent, but they could still file separate tax returns. The disabled spouse in our example wouldn’t have a tax liability, and by filing separately they’d be protected against their spouse’s debts and it wouldn’t throw off their IBR on a student loan.
As always if a reader thinks I am missing something here, let me know! Taxes are hard and this particular topic has a lot of “stuff” going on that isn’t always straightforward.