MFJ Trap

[Corduroy Frog]

Made an appointment with a couple who want to file separately because of student loans. I gathered that the govt is going to offset their refund and so I told them there would be an allowance for injured spouse, such that they could get the benefit of the MFJ rate and still spare one of them from the offset.

They were quick to point out this wasn't the problem. They are not delinquent in payment, but someone told them at Nelnet that if they filed separately the minimum payment could be reduced from $200/mo to $50/mo.

Could this be true. Incredible that these agencies can force additional taxes by requiring MFS status.

Anyone have any insight on this?

[ChEAr$]

Made an appointment with a couple who want to file separately because of student loans. I gathered that the govt is going to offset their refund and so I told them there would be an allowance for injured spouse, such that they could get the benefit of the MFJ rate and still spare one of them from the offset.

They were quick to point out this wasn't the problem. They are not delinquent in payment, but someone told them at Nelnet that if they filed separately the minimum payment could be reduced from $200/mo to $50/mo.

Could this be true. Incredible that these agencies can force additional taxes by requiring MFS status.

Anyone have any insight on this?

I take it you mean that if they file separately, the one owing can use only his income on which to base the payment amount?
Good strategy if cash flow is a problem, however that just means it takes longer to pay the whole smear back.
"Pay 'em now, or pay 'em later. " (grin

[DexEA]

Yes,

had the exact same question this past fall - they will not reduce the payments because MFJ income is too high; however they too were told that if they filed separately they could lower the payments. Shortly after inquiring about the difference in filing there was an injury so one of them ended up w/ a deferment so we went with the MFJ, but I just see a snowball effect with more and more interest accruing.

[Traveling EA]

Mfs

If you are in a community property state, if you are married filing separate, then you pick up 1/2 of you spouse income and they pick up 1/2 of yours.

[Roberts]

It's a weird new wrinkle in the student loan repayment offerings or something. Couldn't believe they allowed you to file MFS.

New client just came in with the exact same issue.
The additional tax for MFS would be about $1,200 between fed and state but they are actually considering it to save on their required minimum payment. Don't understand why it's so important because the non-impacted spouse makes a very substantial income.

[DexEA]

If you are in a community property state, if you are married filing separate, then you pick up 1/2 of you spouse income and they pick up 1/2 of yours.

If you file MFS you still only have 1/2 the income - I don't know what the repayment calculation is but in my case both incomes were about the same, and both incomes were under 30K, I guess they figure two can live a heck of a lot cheaper than one?

[Roberts]

If you file MFS you still only have 1/2 the income - I don't know what the repayment calculation is but in my case both incomes were about the same, and both incomes were under 30K, I guess they figure two can live a heck of a lot cheaper than one?

In the case of my clients, seems they are motivated into making the minimum payment because the loans are forgivable eventually. For whatever reason, someone is going to forgive the loan after she's worked at her current job for X years.

I'll be glad when this client is gone and I never see him again.