The examples used joint annual income levels ranging from $60,000 to $140,000 with varying combinations of income levels between spouses. These income payday loans with no credit check in Bolivar MO ranges were chosen for a number of reasons. First, the student loan interest deduction of up to $2,500 for a married couple filing jointly begins to phase out at AGI levels over $140,000. Also, for married couples filing jointly, the earned income tax credit for a couple with two children completely phases out at $52,500.
The results show that, as a broad generalization, as total income increases, the net benefit of the income – driven plans decreases, and eventually the tax cost of MFS exceeds the loan repayment savings.
The tax difference between MFJ and MFS with no children is attributable to the deduction for student loan interest on the MFJ return, which is not allowed when MFS, and the difference in marginal tax rates when the income levels of the two spouses differ. The difference in the loan repayment amount is attributable to the loan balances, the difference in individual income levels, and the loan program.
When both spouses have loans, the tax cost is lowest when the spouses’ incomes are relatively equal. With relatively equal incomes, the only tax cost of MFS is the tax savings associated with the student loan interest deduction that is allowed when MFJ. As the difference between the spouses’ incomes grows, the tax cost of MFS increases due to the increased marginal tax rate of the spouse with the higher income.
As the income of one spouse increases, the MFS loan payment for that spouse increases while the MFS loan payment for the spouse with the lower income decreases. The respective payment increase and ount, at some income levels the PAYE and IBR payments are capped at the Standard Payment amount. At $20,000 of income, the MFS payment amount under the PAYE and IBR plans is $0.
In general, for couples with less than $100,000 of total income, the payment savings from using individual incomes instead of joint income in the PAYE, IBR, and ICR income – driven plans exceeds the tax cost of MFS.
Tables 2 and 3 show the impact of adding one child or two children, respectively, to the family. The tax calculations assume a $2,000 child tax credit (per child) and a child care credit of $600 (one child) or $1,200 (two children). The MFJ tax computations assume the taxpayers incur child care costs that result in a $600 or $1,200 child care credit for one child or two children, respectively. The child care credit is not allowed if the couple file separately. Losing the child care credit increases the tax cost of MFS by $600 and $1,200 for taxpayers with one child or two children, respectively.
The increase in family size reduces the loan repayment amount in most cases. The median reduction under the PAYE or IBR plans is $56 per month for one child (range from $0 to $112 per month). Family size has less impact on the ICR payment amount with a median reduction of $0 (range from $0 to $46 per month). Increasing the family size to four (from three) reduces the PAYE or IBR payment by a median of $56 per month (an additional $56 above the reduction, if any, for one child). The range is from $0 to $112 per month. The ICR payment is only reduced in four instances out of 14 (three reductions of $75 and one reduction of $150 per month).