logo
Filing Taxes Separately May Not Lower Overall Student Loan Costs

Filing Taxes Separately May Not Lower Overall Student Loan Costs

Forbes3 days ago
WASHINGTON, DC - FEBRUARY 13: A sign for the Internal Revenue Service (IRS) is seen outside its ... More building on February 13, 2025 in Washington, DC. Members of Elon Musk's Department of Government Efficiency (DOGE) arrived at the Internal Revenue Service to begin examining the agency's operations. (Photo by)
For married couples balancing student loan payments, a common tactic may not be as effective as it once was: filing your taxes separately. Under income-driven repayment plans like Income Based Repayment (IBR), couples could file their taxes separately and only count their individual income to calculate their student loan payment, rather than their combined income.
The result was that married couples could see lower student loan payments as a result - especially in situations where one spouse earned significantly more than the spouse that has student loans.
However, changes under the One Big Beautiful Bill Act (OBBBA) might make this harder for some families. The OBBBA introduced several new tax breaks, but also put strict restrictions on them: you cannot use them if you file your taxes Married Filing Separately. This is in addition to the existing restrictions that already impacted families filing separately - making the potential increase in tax liability even worse.
The end result for student loan borrowers: the higher tax burden of filing your taxes separately may not outweigh the student loan savings. Here's what to know.
Why It Can Make Sense To File Taxes Separately
Married couples with student loan debt may want to file their taxes 'Married Filing Separately' in order to reduce their monthly student loan payments on income-driven repayment plans such as IBR, PAYE, ICR, and the upcoming Repayment Assistance Plan (RAP).
These plans base the monthly payment amount on your discretionary income or adjusted gross income (AGI) - both which come from your tax return. If you're married and file jointly, the combined AGI is used. But if you file Married Filing Separately, only your individual AGI is used.
For some couples, the difference can be substantial, especially if the spouse who has student loans earns significantly less than the other spouse.
However, Married Filing Separately isn't a perfect solution. In fact, it may not work for everyone, simply because Married Filing Separately typically increases tax liability. This means you might owe more in taxes as a result.
In turn, the student loan monthly payment savings may not offset the higher tax liability. For example, if filing separately lowers your monthly student loan payment by $100, but increases your total tax bill by $2,000 - you're actually worse off by $800 pear year.
The Tax Burden May Be Growing Under OBBBA
While Married Filing Separately has always had drawbacks and the potential for higher taxes for couples, the OBBBA may be making it worse.
According to Philip Taylor, CPA, 'The OBBBA has some advantages for individual taxpayers. However, for married individuals with income-driven student loan repayment options, it necessitates you revisit the decision to file MFJ or MFS. The new law likely has made the choice of MFS even less attractive.'
Specifically, several key benefits in the new tax bill that are blocked for married couples filing separately:
These new changes come on to of already existing benefits that Married Filing Separately taxpayers would miss out on, including the student loan interest deduction, education tax credits like the Lifetime Learning Credit, and reduced ability to contribute to an IRA.
These lost deductions and tax credits can significantly increase your tax bill, and that higher tax bill might not offset the lower student loan payment. When you're deciding on the right option, you need to look beyond your monthly student loan payment, and assess the total cost that includes the increased tax burden, and also the potential loss of being able to save for retirement.
How To Make The Right Choice
While some tax preparers will check and compare tax filing scenarios, most will only do it with tax liability in mind - they would simply look at which scenario has you paying the least to the IRS. But the IRS isn't the only thing you care about - you also care about your student loan payment! You need to come prepared with student loan payment scenarios (or offer to run them) so you can get a full picture.
This may add a step to your annual tax prep, but it could save you a lot of money.
'Borrowers should request a side-by-side comparison of both joint and separate filings. And be prepared to bring up any income-driven repayment plans you might have access to in order see what the impact is overall,' says Taylor.
If you don't know where to start, here are some questions you can ask your tax professional:
The important thing to remember is that there is no 'one-size-fits-all' options when making this decision. Each family's tax liability and student loan payment will be different. The only thing you can do is compare the options and numbers, and make the best choice for you.
Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

How major US stock indexes fared Thursday, 7/24/2025
How major US stock indexes fared Thursday, 7/24/2025

Yahoo

time2 minutes ago

  • Yahoo

How major US stock indexes fared Thursday, 7/24/2025

Gains for several big tech companies helped nudge U.S. indexes to more records even as most stocks in the market fell. The S&P 500 edged up 0.1% Thursday to another all-time high. The Nasdaq composite gained 0.2%, adding to its record. The Dow Jones Industrial Average fell 0.7%. Alphabet climbed after the company behind Google and YouTube delivered a fatter profit than analysts expected. Tesla sank on worries about how much damage its brand has taken because of Elon Musk's foray into politics. Chemical company Dow Inc. tanked after reporting a far bigger loss than expected and cutting its dividend. On Thursday: The S&P 500 rose 4.44 points, or 0.1%, to 6,363.65. The Dow Jones Industrial Average fell 316.38 points, or 0.7%, to 44,693.91. The Nasdaq composite rose 37.94 points, or 0.2%, to 21,057.96. The Russell 2000 index of smaller companies fell 31 points, or 1.4%, to 2,252.13. For the week: The S&P 500 is up 66.56 points, or 1.1%. The Dow is up 351.72 points, or 0.8%. The Nasdaq is up 162.30 points, or 0.8%. The Russell 2000 is up 12.13 points, or 0.5%. For the year: The S&P 500 is up 481.72 points, or 8.2%. The Dow is up 2,149.69 points, or 5%. The Nasdaq is up 1,747.17 points, or 9%. The Russell 2000 is up 21.97 points, or 1%. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data

Tesla ETF Drops as EV Maker Faces 2Q Earnings Challenge
Tesla ETF Drops as EV Maker Faces 2Q Earnings Challenge

Yahoo

time2 minutes ago

  • Yahoo

Tesla ETF Drops as EV Maker Faces 2Q Earnings Challenge

Tesla Inc. (TSLA) shares plunged Thursday after the electric vehicle maker reported disappointing second-quarter results the night before, dragging down leveraged ETFs tied to the stock. The Direxion Daily TSLA Bull 2X Shares (TSLL), a fund designed to deliver double the daily return of Tesla, was hit especially hard, falling 18% midday as Tesla stock dropped 9%. The electric-vehicle maker reported adjusted earnings per share of $0.40, short of Wall Street's expectations of $0.42. Revenue also missed, coming in at $22.5 billion versus $22.64 billion expected. Sales were down 12% year over year, marking Tesla's steepest annual revenue decline since 2012. Tesla Hits Speed Bump The earnings miss wasn't entirely unexpected. Earlier this month, Tesla revealed it delivered only 384,000 vehicles in the second quarter, a 14% drop from a year earlier. But the poor results reinforced the mounting challenges facing Tesla's core EV business—challenges CEO Elon Musk acknowledged directly. 'We probably could have a few rough quarters,' Musk said on the company's earnings call. 'I'm not saying that we will, but we could. Q4, Q1, maybe Q2.' So far in 2025, Tesla shares are down 25%, while TSLL has plunged 62%, reflecting the leveraged ETF's amplified exposure. Long-term Projects Drive Optimism Despite the sell-off, Tesla stock remains within the broad trading range it's occupied for the past five years. The weakness in the EV business—fueled by increasing competition, softening demand, and Musk's polarizing public profile—has been partially offset by investor optimism around Tesla's longer-term projects. That includes Tesla's robotaxi initiative, which launched limited supervised service in Austin, Texas, last month. Musk said the company hopes to expand ride-hailing operations quickly. 'As we get the approvals and prove out safety, we will be launching the autonomous ride-hailing across most of the country. ... I think we will probably have autonomous ride-hailing in probably half the population of the U.S. by the end of the year.' Musk also provided an update on Tesla's humanoid robot, Optimus, saying the company expects to unveil prototypes of the third generation by year-end and scale production in 2026. 'We will scale Optimus production as fast as possible and try to get to a million units a year as quickly as possible. ... We think we can get there in less than five years.' For now, Tesla's lofty ambitions in autonomous vehicles and robotics are helping cushion the blow from a struggling EV business. But unless fundamentals improve, the stock's ability to stay afloat may depend more on future dreams than present-day | © Copyright 2025 All rights reserved

How major US stock indexes fared Thursday, 7/24/2025
How major US stock indexes fared Thursday, 7/24/2025

Washington Post

time5 minutes ago

  • Washington Post

How major US stock indexes fared Thursday, 7/24/2025

Gains for several big tech companies helped nudge U.S. indexes to more records even as most stocks in the market fell. The S&P 500 edged up 0.1% Thursday to another all-time high. The Nasdaq composite gained 0.2%, adding to its record. The Dow Jones Industrial Average fell 0.7%. Alphabet climbed after the company behind Google and YouTube delivered a fatter profit than analysts expected. Tesla sank on worries about how much damage its brand has taken because of Elon Musk's foray into politics. Chemical company Dow Inc. tanked after reporting a far bigger loss than expected and cutting its dividend.

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into a world of global content with local flavor? Download Daily8 app today from your preferred app store and start exploring.
app-storeplay-store