Campagnolo wrote:Am I wrong to think that you can file Married Filing Separately on your fed taxes and then have only your salary count for IBR? I know that filing MFS increasing your tax liability quite a bit, but it might be beneficial in the long haul if you get $150,000 forgiven after 10 years of paying down the interest. My original question is still how to figure out whether you will go past the LRAP cap after 10 years of public service. Was the credited response Google?
I say the above with GULC's LRAP in mind. I know Cornell expressly considers 50% of joint married income, regardless of tax status. I'm also looking into Michigan's LRAP.
You can file married file separately and have only your salary count for IBR, which would reduce your payment a decent amount. However, you also lose the ability to take certain deductions:
- All education credits and deductions (including student loan interest).
- Earned Income Credit
- Child Tax Credit
- Child and dependent care credit
- Both spouses have to use deductions in the same way (i.e. both standard or both itemized).
The student loan interest deduction is $2,500 off your AGI, so probably worth about $700/year or so if you and your spouse are both working.
The child tax credit is worth $1,000 off your tax bill per child.
Just to see, I used the IBR calculator with some scenarios (figuring $150k in law school loans):$50k income each for you and spouse:spouse no loans:
File Joint: $975/month
File Separate: $350/month (or possibly $420. the calculator doesn't give guidance regarding whether family size should be 1 or 2 if you're married filing separate)
Difference for the year: About $7,500 (or $6,600)Spouse $50,000 loans:
File Joint: $731/month for your loans
File Separate: Still $350/month (or $420)
Difference for the year: About $4,600 (or $3,600)
That's with a family size of 2 and also with the old, 15% calculator rather than the new 10% one, so the difference between filing joint or separate would diminish with the 10% calculation. Seems like the more loans your spouse has, the less filing separate would be worth it. Also, the more kids you have, the less it seems to be worth it (because of the $1,000 child tax credit).
All that to say: the tax/IBR situation is complicated. May be worth visiting a CPA for tax advice concerning this once you're close to repayment. Either that or prepare your returns both ways each year and see which way is better.
My advice for 10 year salary would be just research and guesswork. You can get salaries of public employees online for many jurisdictions. Also, if you go over the cap your last year, who cares? You're probably better off with the additional income for that year.