Accounting News

How to Use Form 1040-X to Change Filing Status

If you’re just joining us, part one in this series explains the basics of Form 1040-X, Amended U.S. Individual Income Tax Return, formerly Form 1040X. It also offers advice on how to submit a 1040-X.

Change of filing status. Let’s suppose a married couple experienced marital problems and decided to file separate 1040s for 2020. Now they’ve reconciled and can save taxes if they file jointly for that year. Another married couple might file separately because one spouse has a relatively low adjusted gross income and significant medical expenses (deductible only to the extent they exceed 7.5 percent of AGI). The other spouse’s AGI was higher and her medical outlays were nominal.

While the law requires couples who file separate returns and live together during the taxable year, even for just a single day, to declare all of their Social Security benefits as reportable income, couples who file jointly always escape taxes on at least 15 percent of their benefits and often sidestep taxes completely.

Is it okay for these couples to switch from separate to joint returns? Yes, provided they file their 1040-Xs by the appropriate deadline. What about couples who file jointly but want to switch to separate? They can do so only if they file 1040-Xs before the due date for the year in question.

The IRS spells out in meticulous detail what needs to be done when a couple has filed jointly but wants to change to married filing separately before the filing deadline has passed. It requires the two spouses to take different paths: the spouse whose Social Security Number appears first on a 1040 has to file a 1040-X; the other spouse files a new 1040.

Normally, the IRS won’t allow couples to switch once the filing deadline has passed. Both spouses remain bound by their election to file joint returns. Stripped of the legalese, someone who decides to file jointly and then divorces can’t disavow a joint 1040 and file separately, so as to compel an ex-mate to shell out more for taxes.

Divorce versus annulment: the big tax difference. There’s a difference between a divorce and an annulment. The courts grant a divorce to mark the end of a marriage that was valid when entered into, whereas an annulment is for a marriage that at no time was valid, as when one of the parties was under the age of consent at the time of the marriage.

To a couple interested only in the fastest way to untie the knot, the question may seem to be an unimportant technicality. Those watchful souls at the IRS, however, think that there’s an important difference when 1040 time rolls around. 

Revenue Ruling 76-255 spells out the difference. An annulment is retroactive; it’s as if the couple was never married. Result: they had no right to make the election to file joint 1040s that’s authorized by Internal Revenue Code Section 7703.

An example: Let’s say a couple married in 2020 and filed jointly for that year; however, after the filing deadline, their marriage was annulled. Because the annulment decree declared their marriage to be null and void from its very inception, the IRS considers them to be unmarried at the end of 2020.

Put more plainly, it’s okay for these parties to file a joint 1040 only if they’re legally married as of Dec. 31 of 2020. Therefore, cautions the IRS, they need to “undo” any joint returns filed for prior tax years by filing 1040-Xs as single filers. Translation: the IRS might dun them for additional taxes and interest.

Ruling 76-255 deals with the rare circumstance in which the IRS allows people who’ve filed a joint 1040 to change their filing status. The ruling involved only a one-year marriage. Nevertheless, the theory would presumably apply regardless of the marriage’s length. 

Let’s end this column on a positive note. Refunds may become available to couples whose marriages were annulled and who would’ve paid reduced taxes as single persons.

What’s next in subsequent columns. More on other aspects of 1040-X.

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