Filing Separately in 2025: Tax Pitfalls and Planning Tips

Filing Separately in 2025 (MFS)

Choosing a filing status can significantly affect a taxpayer’s overall tax liability, eligibility for credits and deductions and compliance complexity. The decision to file jointly or separately carries weighty implications for married individuals. While the married filing separately (MFS) status is sometimes necessary due to legal, financial or personal reasons, it comes with potential tax code limitations and disadvantages.

This article outlines the consequences of choosing MFS for the 2025 tax year, including new deductions available as a result of the One Big Beautiful Bill Act of 2025 (OBBBA). Tax professionals should be aware of the wide-ranging restrictions on credits, deductions and income thresholds associated with this status and be prepared to advise clients accordingly.

First, it’s important to understand that a couple’s marital status on the last day of the tax year determines which filing status options are available. If the couple is legally married on Dec. 31, they are generally limited to choosing between married filing jointly (MFJ) or MFS. While some exceptions, discussed later, may open the door to other filing statuses, MFJ and MFS apply to most married taxpayers.

Additionally, filing status is determined on a year-by-year basis. Choosing one filing status for a particular tax year does not obligate the couple to use the same status in future years, assuming their circumstances remain unchanged.

Credits and deductions unavailable or severely limited

Filing Separately in 2025

MFS can be a restrictive filing status, disqualifying taxpayers from many common tax benefits. Even where eligibility exists, phaseouts and income limitations can be more limiting than other filing statuses.

Deduction for qualified overtime compensation

The OBBBA added a deduction for qualified overtime compensation of $12,500 for single taxpayers ($25,000 for MFJ) for tax years 2025 through 2028. If a taxpayer’s modified adjusted gross income (MAGI) is over $150,000 ($300,000 for MFJ), it will begin to phase out by $100 for each $1,000 over the MAGI threshold amounts. The deduction is available for both itemizers and non-itemizers; however, if married taxpayers file separate returns, the deduction is $0.

Deduction for qualified tips

The OBBBA also added a deduction for qualified tips under §224 for tax years 2025 through 2028. A taxpayer (employees and self-employed individuals) can deduct up to $25,000 in qualified tips; however, if their MAGI exceeds $150,000 ($300,000 for MFJ), the deduction is reduced by $100 for each $1,000 in MAGI over the threshold amounts. Taxpayers do not need to itemize to be eligible for the deduction. If married taxpayers file separate returns, the deduction is $0.

Deduction for qualified care loan interest

A deduction for qualified passenger vehicle loan interest is now available under §163(b)(4)(A) for tax years 2025 through 2028. The maximum deduction allowed for any tax year is $10,000; however, if the taxpayers’ MAGI exceeds $100,000 ($200,000 for MFJ), the deduction is reduced by $200 for every $1,000 over MAGI. This deduction is allowed to both itemizers and non-itemizers. If a married taxpayer does not file a joint return, their deduction is $0.

Additional deduction for seniors

For tax years 2025 through 2028, taxpayers age 65 by the end of the tax year are eligible for a $6,000 deduction under §151(d)(5)(K). In the case of a married couple, if both spouses are 65 and older, the maximum deduction amount is $12,000. The deduction is subject to a phase-out. If the taxpayer’s MAGI is $75,000 ($150,000 for MFJ), the deduction is reduced by 6% of the MAGI over the threshold amount. If a married taxpayer does not file a joint return, their deduction is $0.

Earned income credit (EIC)

MFS filers are generally precluded from claiming the EIC. The only exception applies to certain legally married taxpayers who meet the separated spouse exception. To qualify for the exception, the taxpayer must have:

• Lived apart from their spouse during the last six months of the year

• Paid more than half the cost of maintaining the household

• A qualifying child

In such cases, they may be eligible to file as head of household (HOH), which allows them to claim the credit.

Child and dependent care credit

This credit is disallowed for MFS filers, except in limited circumstances. A taxpayer may qualify only if they lived apart from their spouse for the final six months of the year and meet the head of household criteria. Even then, eligibility hinges on having a qualifying child and satisfying additional requirements.

Adoption credit and exclusion

Taxpayers filing separately cannot claim the adoption credit or exclude employer-provided adoption assistance. These benefits are categorically disallowed unless the taxpayer qualifies for HOH status.

Education credits

The American opportunity tax credit and lifetime learning credit are off-limits to MFS filers. These education-related credits require filing under a more favorable status, such as single, HOH, qualifying surviving spouse (QSS) or MFJ.

Student loan interest deduction

MFS filers are ineligible to claim the above-the-line deduction for student loan interest, regardless of their income or the amount of interest paid during the year.

Exclusion of U.S. savings bond interest

Those who file separately are not eligible for exclusion of interest from qualified U.S. savings bonds used for higher education expenses.

Credit for the elderly or disabled

This credit is unavailable to MFS taxpayers who lived with their spouse at any point during the year. Only those who lived apart for the entire year may be eligible.

Standard deduction restrictions

Taxpayers using the MFS status face additional limitations on the standard deduction:

• If one spouse itemizes deductions, the other must also itemize.

• If both spouses claim the standard deduction, the allowable amount is halved. For 2025, this results in a standard deduction of $15,750 for each spouse, rather than $31,500 on a joint return.

Credits and deductions with lower phaseouts or reduced limits

Even when MFS filers are eligible for certain tax benefits, those benefits often come with sharply reduced income thresholds and narrower limits.

Child tax credit (CTC) and credit for other dependents (ODC)

The phaseout threshold for the child tax credit and other dependent credit begins at $100,000 of MAGI for MFS filers. This is half the threshold for joint filers and significantly lower than the $200,000 phaseout for single or head of household filers.

Although the credit amounts remain the same (up to $2,200 per qualifying child for the CTC and $500 per dependent for the ODC), many MFS filers will lose eligibility due to the lower income limit.

Retirement savings contributions credit (saver’s credit)

The saver’s credit encourages contributions to retirement accounts by offering a credit based on AGI. MFS filers are subject to lower income limitations, with the maximum credit phasing out at $38,250 of AGI in 2025, compared to $76,500 for joint filers. The 50% credit rate applies if AGI is below $23,625.

Traditional IRA deduction

If an MFS taxpayer’s work retirement plan covers them or their spouse, the ability to deduct contributions is limited to $0 to $10,000 if the taxpayer lived with their spouse for any part of the year, eliminating the deduction for most MFS filers.

Passive rental real estate losses

The passive activity loss rules typically allow up to $25,000 in rental real estate losses for active participants. MFS filers who lived with their spouse at any time during the year are excluded from this benefit. Those who lived apart all year may qualify for a maximum deduction of $12,500, half the standard allowance.

Capital loss deduction

Taxpayers who realize more capital losses than gains can deduct those losses against ordinary income, but MFS filers are limited to a $1,500 annual deduction. This is half the amount available to joint filers.

Alternative minimum

The AMT exemption is reduced for MFS filers. For 2025, the exemption is $66,200, compared to $132,400 for those filing jointly. This makes MFS filers more vulnerable to AMT liability, especially if they have significant preference items.

Other important limitations and considerations

Tax rates and bracket compression

MFS filers encounter bracket compression and narrower tax brackets compared to other statuses. For example, the 24% bracket begins at $103,351 for MFS, while joint filers do not hit that rate until $206,917. This effectively raises the marginal tax rate on middle-income households filing separately.

Taxation of Social Security benefits

Up to 85% of Social Security benefits may be taxable for MFS filers, even at low-income levels, if they lived with their spouse during the year. There is no favorable base amount threshold, as there is for other filing statuses.

Itemized deduction lockstep

MFS filers must coordinate with their spouses. If one spouse itemizes, the other is also required to itemize, regardless of whether it yields a higher deduction. This can be especially unfavorable if only one spouse has significant deductible expenses.

AGI-sensitive deductions

There are isolated cases where MFS could result in a larger deduction. Deductions that are limited based on a percentage of AGI, such as unreimbursed medical expenses over 7.5% of AGI, may be more favorable if the taxpayer has a lower income on a separate return. However, these benefits are generally outweighed by the broader disadvantages of MFS status.

Community property considerations

Taxpayers living in community property states face added complexity when filing separately. These states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. When filing separately in these states, each spouse generally must:

• Report half of all community income (such as wages, business income and investment earnings), regardless of who earned it

• Report 100% of their separate income, such as inheritances or property held before marriage

Married filing separately is not just a checkbox. It is a decision that can eliminate thousands of dollars in tax benefits.

This requirement can produce counterintuitive results. For example, a spouse with no personal earnings may still be taxed on half of the other spouse’s income. Accurate recordkeeping and understanding what is considered community income versus separate income are essential when navigating these rules.

Conclusion

Filing separately is sometimes necessary, particularly in cases involving legal separation, financial privacy or liability concerns one of the parties may have, such as unpaid loans or student loans, which may jeopardize a potential refund if the return is filed jointly. However, the MFS status is accompanied by a list of disallowed credits, lower deduction thresholds and compressed tax brackets. While occasional tax planning benefits may exist under MFS, most taxpayers will face a significantly higher tax burden.

Filing Separately in 2025 - By NATP staff