For couples who file jointly but like to keep separate finances, a question I often get is “What portion of our total tax refund/bill is mine, and what portion is my spouse’s?“
This really isn’t an easy question to answer! According to tax law, when you file a joint return, you and your spouse are a single tax entity, which means that all of your income and deductions and tax withholding get mashed together; t’s not easy to separate them back out.
The best I can do is estimate each spouse’s portion, but it’s a tricky process, and can easily add an hour or two to your overall tax preparation time:
- Create two mock tax returns as if each spouse were to file as “single”.
- Separate all income and deductions in some agreed-upon manner (i.e., who will claim what percentage of mortgage interest? who claims any child tax credits? is everything split 50/50?), and apply those numbers to the two tax returns.
- Determine the final income tax liability for the two returns, and use those numbers to create an (estimated) ratio of each spouse’s separate income tax liability to the total (combined) income tax liability.
- Apply that ratio to the income tax liability on the joint return, to determine each spouse’s “share” of the income tax liability on the joint return.
- Add in any taxes that apply to separately to each spouse, such as social security and medicare taxes on self-employment earnings.
- Subtract out any payments that each spouse has already made, such as tax withholding from W-2’s.
- The end result is each spouse’s estimated share of the final refund or tax due.
Note that the results can be… weird. For example, if one spouse has significantly underpaid, but the other spouse has significantly overpaid, the entire refund (or tax bill) may be allocated to only one spouse. Even more, if the discrepancy is big enough, one spouse may need to pay an additional amount to the other spouse, in order to balance things out.
Also note that the result is only an estimate! There’s no “right” answer to this!