MFS with no exemptions

[Snaggletooth]

Young people married at end of the year, after being in college earlier in the year. Didn't make much money. So parents of both want to continue to claim their student-children for one more year. Last year for this, as the following year they will be MFJ.

Every time I've gone behind this situation, I've seen MFS, where the new couple is failing to claim one (or both) exemptions.

When one or more spouses do not claim themselves, can they not still file MFJ? I don't see any qualifications in the filing status instructions which prevents them from MFJ...

[Koss]

Filing Status

What's causing the confusion is the joint return test.

It works like this:

You cannot claim a married person who files a joint return as a dependent unless that joint return is only a claim for refund and there would be no tax liability for either spouse on separate returns.

That's straight from Publication 17.

So if they are going to file MFJ, and you want to be certain that the parents can still take them as dependents, you have to figure what their tax liability would be if the filed MFS. If filing MFS would leave either one of them with any tax liability at all, then they can't file MFJ and also be claimed as dependents by their parents.

At least in theory, you could have a scenario where if they file MFJ they have zero tax liability, but if they file MFS, one of them would have a tax liability, even if you hold constant the fact that they are claimed as dependents by their parents.

Intuitively, it feels like this could happen if one of them has income that exceeds the standard deduction, but the other one has zero or little income. By filing MFJ, the one with the higher income avoids tax liability due to the higher MFJ standard deduction--even when you account for the special rules that are used to determine the standard deduction for a dependent.

In other words, one spouse cannot use the other's share of the MFJ standard deduction. Actually they can, because legally they have the right to file a joint return, but then their parents could not take them as dependents.

If the tax liability for both of them would be zero on MFS returns, then they can file MFJ and the parents can still claim them...

assuming that all the other criteria for dependency are met.

BMK

[Gary2]

If the tax liability for both of them would be zero on MFS returns, then they can file MFJ and the parents can still claim them...

One nit: That only works if they file just to get a refund of withholding. If, for example, only one of them would qualify as a dependent filing MFS, while the other would qualify for the refundable AOC and they claim that on the joint return, then the first can't be claimed as a dependent. But if they forego the AOC, then he or she could be claimed.