First, this article reviews the tax law differences between MFJ and MFS. Next, the three income – driven plans that calculate payments differently depending upon filing status are discussed. Using various taxpayer scenarios, this article compares the tax cost of MFS with the reduction in loan payments, using individual versus joint income under the three income – driven plans.

A couple filing MFS returns generally incur a greater tax liability than if they file an MFJ return, because of the numerous differences in the tax law between the two filing statuses. The differences include tax rates, the opportunity to claim various exclusions and credits, and lower eligibility or phaseout levels.

The usual assumption that the higher marginal rate for couples filing separately results in a greater tax liability is true in most situations.Continue reading→