Iowa offers 3 filing statuses for married couples:
- Married filing jointly
- Married filing separately on a combined return
- Married filing separately on separate returns
Someone asked me recently if a married couple could file separate Iowa tax returns even if one spouse has no income.
The answer is yes, but the only reason you’d want to do this would be to keep tax liabilities separate, because the ending tax liability would be the same under any of the filing statuses.
Example
Angie and Alex are married. Alex works and makes $60,000 per year. Angie is a stay-at-home mom and has no income of her own. Let’s say they have $10,000 of itemized deductions they can take in Iowa. (For the sake of simplicity, we’ll ignore the fact that there would likely be prior-year tax refunds to add into income, and tax withholdings to subtract from income.)
If they file jointly, their tax liability will be:
- $60,000 income
- Minus $10,000 itemized deductions
- Equals $50,000 taxable income
- (Again, we’re ignoring taxable federal refunds, and deductions for federal income tax withholding so we can keep this example simple)
If they file separately, their tax liability will be:
Alex:
- $60,000 income
- Minus $10,000 itemized deductions (remember, itemized deductions in Iowa are allocated based on income, so Alex gets allocated 100%)
- Equals $50,000 taxable income
Angie:
- $0 income
- Minus $0 itemized deductions
- Equals $0 taxable income
Iowa has just one tax bracket, regardless of filing status, so the ending tax liability will be the same whether they file separately or jointly.
Why File This Way?
Since joint or separate produces the same tax liability either way, why file separately? The answer is, if they want to keep their tax liabilities separate. CAVEAT — separate liabilities ONLY come about if a couple files as “married filing separately on separate returns.” Filing separately on a combined return results in a joint tax liability.
What About Claiming $0 Income Spouse as a Dependent?
I see nothing in Iowa law that says, in our example above, that Alex couldn’t file married filing separately on a separate return, and claim Angie as a dependent — as long as Angie met the federal requirements for being claimed as a dependent. Iowa follows federal law as far as who can claim whom as a dependent.
I wrote about claiming a low-income spouse as a dependent in this post and this post.