A Practical Decision Guide for Couples With Student Loans, High Medical Bills, and Uneven Income

Most married couples assume that filing jointly always produces the best tax outcome. While this is true for many households, the 2026 tax season has renewed interest in Married Filing Separately (MFS) because of growing student loan balances, rising medical costs, and new deduction structures.

For certain couples, filing separately can actually increase the total combined refund, protect one spouse’s refund from offsets, or reduce taxable income on income-driven student loan plans.

This guide explains when MFS can be an advantage, how the IRS treats separate returns, and which couples should at least evaluate both filing options before submitting their 2025 return.

Why Married Filing Separately Is Sometimes the Better Choice

The IRS typically discourages MFS with reduced credit availability and stricter rules, but there are very real situations where filing separately may:

• Produce a larger refund
• Prevent a refund from being seized by Treasury Offset Program debts
• Protect one spouse’s credits
• Lower payments on income-based student loan plans
• Lower tax liability on high medical expenses
• Allow one spouse to use special deductions or exemptions

In the 2026 refund season, MFS can become valuable when income or debt situations between spouses are significantly different.

The Top Scenarios Where MFS Increases Refunds

Below are the most common situations where Married Filing Separately may outperform Married Filing Jointly.

1. One Spouse Has High Student Loan Debt on an Income-Driven Repayment Plan

Income-driven repayment (IDR) plans often use household income to calculate student loan payments. Filing jointly can increase loan payments dramatically—sometimes by hundreds per month.

Filing separately allows the borrower to:

• Have their IDR payment calculated from their income only
• Qualify for lower monthly payments
• Maintain eligibility for payment-based loan forgiveness
• Reduce cash outflow even if the refund difference is small

For households prioritizing loan repayment, MFS can save thousands per year.

This strategy is particularly powerful when:

• There is a large income gap between spouses
• Only one spouse has federal student loans
• One spouse’s loans qualify for SAVE, PAYE, or IBR

2. One Spouse Has Major Medical Expenses

Medical expenses are deductible only when they exceed 7.5 percent of adjusted gross income (AGI).

If one spouse has extremely high medical costs, filing jointly increases the AGI threshold and reduces eligibility for the deduction.

Filing separately allows:

• The ill or medically burdened spouse to use their own AGI
• Lower thresholds
• Higher medical expense deductions
• Better refund results when medical bills are substantial

This is one of the most overlooked and powerful reasons to file MFS.

3. One Spouse Owes Debts That Can Trigger Treasury Offset Program (TOP)

If one spouse owes:

• Past-due child support
• Defaulted federal student loans
• State income tax
• Unemployment overpayment
• IRS back taxes
• Federal non-tax debts

A joint refund can be seized.

Filing separately protects the other spouse’s refund from:

• TC 826 and TC 836 (offset codes)
• TC 898 (external offsets)
• IRS refund reductions
• TOP seizures

This is essential when one spouse has outstanding government-related debts.

4. Large Income Differences Can Affect Phase-Outs and Credits

Certain deductions, credits, or savings opportunities become more valuable when spouses file separately, especially when:

• One spouse claims itemized deductions
• One spouse qualifies for special tax breaks
• Joint income pushes the couple over phase-out limits

In these cases, MFS allows the lower-income spouse to claim benefits independently.

5. One Spouse Has Significant Miscellaneous or Job-Related Deductions

Certain deductions are available only when expenses exceed 2 percent of AGI.

Filing separately may lower the AGI calculation, allowing the taxpayer to:

• Claim unreimbursed business expenses
• Deduct specialized work tools or equipment
• Deduct union, licensing, or credentialing fees

When combined with other deductions, this can shift the overall refund.

Things You Lose When Filing Separately

MFS does not always boost refunds. The IRS restricts several credits for couples filing separately, including:

• Earned Income Tax Credit
• American Opportunity Credit (refundable portion)
• Lifetime Learning Credit
• Adoption Credit
• Certain education deductions
• Child and Dependent Care Credit (with limited exceptions)
• Certain retirement contribution credits

Couples must calculate both filing methods to see which produces the better outcome.

Married Filing Separately vs. Jointly: A Simple Decision Guide

Use this checklist to determine if MFS may be beneficial:

Consider MFS if:

• One spouse owes federal or state debt that could offset a refund
• One spouse has very high student loan balances
• One spouse uses income-driven repayment
• One spouse has large medical expenses
• You want to keep refunds fully separate
• Income differences between spouses are significant
• You plan to itemize and deductions vary dramatically between spouses

Stick With MFJ if:

• You rely on refundable credits (EITC, ACTC, AOTC)
• Both incomes are similar
• Neither spouse has federal debt
• You have dependents and want maximum credits
• Both spouses have student loans or similar income levels

For many households, the best strategy is to run the numbers both ways in software before choosing.

Married Filing Separately is often seen as a disadvantage, but in 2026 it can be a smart tax strategy—especially for couples dealing with:

• High student loan debt
• Major medical expenses
• Refund-seizing government debts
• Uneven income distribution

While MFJ provides more credits, MFS can produce a larger refund or protect one spouse’s refund from offsets. The right filing status depends on your household’s income, debts, deductions, and financial priorities.

Before filing your 2025 return, use a tax calculator or speak with a professional to compare both filing options and choose the one that maximizes your refund.