Tax Filing Statuses and Their Implications:
The tax filing status you choose when filing your federal tax return can affect your AGI, which in turn impacts your monthly payment under an IDR plan.
Single Filing: If you file as a single individual, the IDR plan will only consider your individual income.
Married Filing Separately: By choosing this filing status, typically only the borrower's individual income will be considered.
Married Filing Jointly: By choosing this filing status, typically only the both spouses income will be considered.
Married Filing Jointly vs. Married Filing Separately:
Married Filing Jointly: If you're married and choose to file your taxes jointly, the combined income of you and your spouse will be used to determine your monthly payment under most IDR plans. This can mean a higher monthly payment if your spouse also has a substantial income.
Married Filing Separately: Some borrowers choose to file their taxes separately from their spouse to exclude the spouse's income from the calculation of the IDR monthly payment. This can result in a lower monthly payment, but it's essential to weigh this benefit against potential tax disadvantages of filing separately.
If both spouses have federal student loans
If both spouses have federal student loans, file there taxes jointly, and are enrolled in Income-Driven Repayment (IDR) plans, the calculation for monthly payments under the plan can differ slightly from when only one spouse has loans. Here's a brief overview of how the monthly payments are calculated when both spouses have student loans and file taxes jointly:
Consideration of Combined Income:
When you're married and file jointly, most IDR plans consider both spouses' incomes combined. This is the AGI that's taken into account.
Consideration of Total Loan Debt:
While the combined income of both spouses is considered, the total federal student loan debt of both spouses is also taken into account.
Proportional Distribution:
The Department of Education uses the combined income and total student loan debt to determine a joint monthly payment amount for both spouses. This joint payment is then proportionally distributed between the two spouses based on each individual's loan debt.
For instance, if Spouse A owes $20,000 and Spouse B owes $30,000, the joint monthly payment might be divided such that Spouse A pays 40% of it (representing their portion of the total debt) and Spouse B pays 60%.
Considerations for Couples with Student Loans:
Double Student Loans: If both spouses have significant student loan balances, filing jointly might be beneficial, especially if both are enrolled in IDR plans. This can potentially lead to a more balanced monthly payment that considers both loans and incomes.
One Spouse with Higher Income: If one spouse earns significantly more and doesn't have student loans, filing separately might be beneficial for the spouse with student loans to get a reduced IDR payment.