Posted by Aurelia E Weems CPA

Calculations Behind Married Filing Separately For IBR or PAYE

Calculations Behind Married Filing Separately For IBR or PAYE

For couples with student loan debt, one of the most popular strategies for reducing monthly student loan payments and the ability to qualify for student loan repayment is to file as married filing separately.

For Income Based Repayment (IBR) and Pay As You Earn repayment (PAYE), the monthly student loan payment is calculated based on Adjusted Gross Income (AGI). If you are married and file a joint tax return, the monthly student loan payment will be calculated based on the jointly adjusted gross income.

Therefore, an easy way to potentially reduce student loan payments and increase student loan forgiveness potential is to reduce Adjusted Gross Income. Couples can do this by filing separately returns rather than joint filing.

If you're unsure what to do or where to start, consider talking to a tax professional to help you find the best options for your student loans and a tax professional such as Aurelia E Weems, CPA. will help you make the best student loan decision.

The problem with married filing separately for IBR or PAYE 

There are two main issues to consider with this approach. First, this does not apply to the revised pay as you earn (RePAYE) payment plan. With RePAYE, no matter how you file your taxes, the joint AGI is always taken into account.

Second, and usually a bigger problem, the math doesn't always make sense. You see, when you file a separate return, you usually have to pay more in taxes as a couple. Therefore, you need to outweigh the potential savings from your student loan debt against the higher taxes you will face. Even if you save a little on the monthly student loan payment, it might not exceed the higher taxes you will encounter each year.

Let's look at some scenarios and see how the calculations behind the separate filing of IBR and PAYE work.

How couples filing a separate return can maximize IBR or PAYE

Let's start with the ideal scenario because that's what everyone is interested in. So let's set up this scenario because it's pretty typical. Let's assume John and Jane are couples, and they have a ten-year-old girl named Jennifer.

John earns $40,000 annually and $50,000 in direct loans.

Jane earns $60,000 per year and has no student loan debt.

Let's see what their tax return looks like. For the sake of simplicity, both partners only have W2 income for their AGI.

Married filing jointly versus married filing separately



Joint Return





Student Loan Interest Deduction




Adjusted Gross Income




Standard Deduction




Itemized Deductions




Taxable Income




Regular Tax




Tax Credits (Child Tax Credit)




Taxes Net Of Credits





 As you can see in the example above, this couple saves $1,174 per year in taxes on filing a joint return.

However, John also has direct loans of$ 50,000. If this couple files a joint tax return, they are not eligible for IBR or PAYE. If we assume that this couple is looking for the lowest payment option for their loans, the best option is the extended repayment plan. Your payment would be $347 per month for 300 months (25 years), the same length as the IBR. This works out to $4,161 per year.

Now, if this couple files a separate marriage tax return, they will pay an additional $1,174 per year. But this opens up more payment options for John. For example, John will now be eligible for IBR and PAYE.

For PAYE, the monthly payment will be $74 per month, with possible loan forgiveness of $64,424 after 240 months.

For IBR, the monthly payment will be $100 per month, with possible loan forgiveness of $11,948 after 300 months.

Therefore, if John switches to PAYE, they will save $273 per month on student loans alone. This equates to a savings of $3,276 per year in student loan repayments.

So let's combine their higher taxes and lower student loan payments and see what we get:

Student Loan Savings By Filing Separately

Filing Jointly

Filing Separately

Total Tax Due



Total Annual Student Loan Payments






Therefore, by switching from a joint filing to a separate filing, you can expect savings of $2,960 per year. Also, it is moving towards possible forgiveness of student loans after 20 years.

When it does not make sense to file separately for IBR or PAYE

There are certain scenarios in which it does not make sense to file a separate return to save on student loan payments. However, each must come to terms with their unique situation to decide for themselves.

Here are some general rules when it doesn't make sense:

  • When a student who takes out a loan earns more

  • When the borrower's income is not separately eligible for IBR or PAYE

Simple ways to do math

It might seem a bit overwhelming, as there is a lot of math and scenarios involved. However, most tax software allows you to calculate the tax difference if married filing jointly and the married filing separately. You can also get the services of an accountant or a tax professional to help you with taxes, and they should also point out the differences.

Finally, add the costs. You can use the table above as a guide to see what tuition and student loans would look like and how to top up taxes to save more money.

What about the "tax bomb"?

Many people are worried about the possibility of a tax bomb because of the cancellation of loans associated with income-based repayment plans.

And while that's a valid concern, we don't think it will apply to most debtors due to "Insolvency" and IRS rule. 

Plus, it's not something you should be worried about. Instead, focus on finding a payment plan that you can pay off each month and reassess it as your income grows over time. The worst thing you can do with your student loans is to avoid making payments. Even an income-based payment is better than nothing.

Get professional help

If you're unsure where to start or what to do, consider hiring Aurelia E Weems, CPA. to help you with student loans. We recommend a professional because a professional will help you create a solid financial plan. 

You can also call your lender, but they may not be able to help you with this complex situation over the phone.


Depending on your tax status and the value of your student loan, you can save money by filing taxes separately so that you can qualify for IBR or PAYE and save on your student loans. However, you have to remember that you will be paying more in taxes, so it's important to do the math and see which scenario works best for you.



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