My uncle and aunt kept their finances separate. She had her own account and income, and he did, too. When tax time came, they filed together, but my uncle took all of the tax return money. Of course, my aunt fumed about this, but the situation never changed. If you and your spouse have separate finances, equity is just one of the reasons why couples should split a tax refund.
Reasons Why Couples Should Split a Tax Refund
There are two main reasons, among many, why couples who have separate finances should split a tax refund.
Equity
A marriage is more successful if each party is treated fairly. By splitting the tax refund, you are acknowledging that you are each important in the relationship and each had a role in earning money. If one spouse gets all of the tax refund, as was the case with my aunt and uncle, inequity enters the relationship along with hard feelings.
One Spouse Has a Side Hustle
Another reason why you might want to split a tax refund is if one spouse has a side hustle. For instance, Kenji works full-time as a scientist. His employer takes money out for Kenji’s taxes every week. His wife, Tanika, is self-employed. If she were filing separately, she would need to pay quarterly self-employment taxes. However, because she makes much less than Kenji and files jointly with him, she doesn’t have to pay quarterly taxes because Kenji’s tax deductions cover the taxes for both of them.
In addition to splitting the refund, they may even want to go one step further and first make up the difference that Kenji pays in taxes from what Tanika would have to pay in quarterly taxes if she couldn’t rely on Kenji’s tax withdrawals. After that, they could split the tax refund in half.
How To Divide Your Tax Refund
Every couple has a unique financial situation, so you will need to determine what works best for you.
Computing How Much Each Individual Gets
As in the above situation, sometimes one partner pays more in taxes than the other, so you may want to first address the inequity and then split the rest. This is also true if one partner brings more tax deductions and credits such as if she is paying student loans back and can utilize the interest paid.
In addition to these types of situations, if one person makes more than the other, you can also separate based on the amount of taxes paid. For more information, Will Peterson has an excellent YouTube video breaking down how to determine how much each partner should get from the tax return to be truly equitable.
How To Physically Separate the Refund
Once you decide how much each party gets, you can either have the refund go in a joint account or one spouse’s account and have her put half in her spouse’s account.
Or, if you prefer, you can use IRS Form 8888, Allocation of Refund, and fill in the amount each spouse should get as well as each spouse’s bank account number, and the government will put the designated refund in each person’s account.
Final Thoughts
If you have separate finances, there are several reasons why couples should split the tax refund. The two of you can agree on how to split it and how much each party should receive.
Read More
Easy Tips to Help You File Joint Taxes
How to Decide If You Need a Separate or Joint Bank Account
Leave a Reply