Because of the many differences involving tax credits and deductions, it is almost impossible to directly compare the U.S. and Canadian tax systems.
One of the big differences is when it comes to married couples filing their tax returns. What we call income splitting, the Americans refer to as "joint filing status," and they offer two choices for spouses at tax time: Married-filing jointly; or married-filing-separately.
The rules can vary from state to state but in general, marriage dictates the filing status. And marriage, by the way, is considered to be a legal union between a man and a woman.
Common law unions, which are the norm in Canada and would presumably be recognized by a new federal income-splitting rule, qualify in the U.S. only if they are recognized by the state where the couple now lives or where the union began.
Same-sex couples in the U.S. cannot file jointly for federal tax purposes under any circumstances.
Not surprisingly, most married couples in the U.S. — 97 per cent — file joint returns because it usually results in less tax owing overall. That's because the income is pooled for tax purposes and the higher-earning spouse is bumped down into a lower bracket.
Also, when a married couple files separately, some tax credits are lost. Under joint filing, the biggest tax benefits go to couples where one spouse earns considerably more than the other.
Joint liability
But there is a catch to filing jointly. It's called joint liability.
Together, a U.S. couple may pay less tax. But both spouses become individually liable for the accuracy of the return.
If one spouse is hiding income or owes money on a student loan or for child support from a previous marriage, the "innocent" spouse can be pursued for penalties and interest.
The vast majority of these innocent spouses are women, many of whom are often newly separated or divorced. Each year millions of them are hounded by the taxman for payments on income they have no legal rights to.
The U.S. Congress has legislated some protection for these innocent spouses. But it's no easy job going up against the IRS, which may explain why so many Americans hire professionals to prepare their tax returns.
In situations like this, filing separate returns would provide complete protection.
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