When does spouses income increase IBR payments?

[Macklin]

I'm going to graduate from medical schoolMay, and I am getting married the same month. I realize that with IBR, your household income is used to calculate the IBR payment if you are married and file taxes jointly, making the payments quite a bit larger. However, my fiancee and I did not file taxes jointly last year because we weren't married yet.

When I start paying IBR payments, will they use both our incomes to calculate the payments from the start? Or will the payment increase next April because that's the first time we filed taxes together? Thanks!

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[DrBowtie]

I'm going to graduate from medical schoolMay, and I am getting married the same month. I realize that with IBR, your household income is used to calculate the IBR payment if you are married and file taxes jointly, making the payments quite a bit larger. However, my fiancee and I did not file taxes jointly last year because we weren't married yet.

When I start paying IBR payments, will they use both our incomes to calculate the payments from the start? Or will the payment increase next April because that's the first time we filed taxes together? Thanks!

I would calculate filing your taxes both ways (together and separate). In my experience, any tax return benefit from joint filing is dwarfed by the increase in IBR payment increases.

 

[James Martin]

The IBR calculation takes your adjusted gross income (separate or combined, depending on tax filing status) and subtracts the minimum earnings essential for maintaining quality of life.

 

[Macklin]

I guess my question is this- to my understanding IBR determines your monthly payment by the previous year's tax information and calculates your AGI. My fiancee and I filed separately for this April (4/2015) because we will not be married until 5/2015. I apply this year for IBR on 11/2015.

Will my first year of IBR payments be based only on my income from my tax return from 4/2015 (effectively 0 because I was a med student and we filed separately)? Or will I have to put my spouses information on the IBR application so they can calculate my AGI based on both our incomes (because we will be filing jointly this coming tax season in 4/2016)?

 

[ThePursuit]

If you file separately, your IBR income payment is only based off YOUR income. I filed separately from my wife this year and my monthly payment dropped by 70%

 

[The White Coat Investor]

I'm going to graduate from medical schoolMay, and I am getting married the same month. I realize that with IBR, your household income is used to calculate the IBR payment if you are married and file taxes jointly, making the payments quite a bit larger. However, my fiancee and I did not file taxes jointly last year because we weren't married yet.

When I start paying IBR payments, will they use both our incomes to calculate the payments from the start? Or will the payment increase next April because that's the first time we filed taxes together? Thanks!

It's all about how you file taxes. Lots of resident couples file separately to minimize IBR/PAYE payments, even if it means paying more in tax.

 

[Yellow mellow]

But what if both owe a lot on student loans but only one makes a doctor's income ?

 

[Promethean]

But what if both owe a lot on student loans but only one makes a doctor's income ?

It may still be beneficial, but you'd want to run the numbers.

If husband has 100k debt and earns just a little, his IBR payments may be quite low indeed.
If wife has 200k debt and earns a lot, her IBR payments may not be much affected by excluding his income, but they will still be a little lower.

Taken together, the net reduction in payments will probably be more than substantial enough to overcome the penalty for filing separately.

I'm actually really excited to consider this scenario. My spouse is getting ready to take the CPA exam, and we were sitting around chatting about the very few situations where filing separately is financially beneficial, because that is the kind of pillow talk that goes on in the Promethean household. He is making me breakfast, so I'm gonna log off and go tell him that SDN served up another exception to the general rule that joint filing is the way to go. Thanks guys!

 

[ENTologist]

But what if both owe a lot on student loans but only one makes a doctor's income ?

IBR is calculated as a percentage you owe based on the AGI on your tax line. If you file jointly, your AGI will be higher be whatever income your spouse adds. If you both are under IBR, and you file jointly I don't think much would change. If only one is paying by IBR and you file jointly... it will change commensurate with the change in your AGI.

Another thought is that, just because you file separately and aren't FORCED to pay more per month, doesn't mean you SHOULDN'T pay more per month. Obviously this depends on your financial situation and future goals.

 

[Yellow mellow]

IBR is calculated as a percentage you owe based on the AGI on your tax line. If you file jointly, your AGI will be higher be whatever income your spouse adds. If you both are under IBR, and you file jointly I don't think much would change. If only one is paying by IBR and you file jointly... it will change commensurate with the change in your AGI.

Another thought is that, just because you file separately and aren't FORCED to pay more per month, doesn't mean you SHOULDN'T pay more per month. Obviously this depends on your financial situation and future goals.

But if filed jointly, his monthly payment would be higher because my higher income is included. Whereas if we filed separately, his ibr payment will only consider his lower income thereby resulting on a lower monthly payment.

Ofcourse we would want to pay more monthly but it's nice to have the option to do so especially because we are not in the best place financially right now.

 

[sanktank7]

I am also in IBR (not eligible for PAYE due to undergrad loans prior to 2007) planning to do PSLF as a single non-married individual. My understanding is that IBR payments are 15% of discretionary income (AGI minus poverty line) so I have been looking for ways to lower my AGI...

I was thinking that in this case deferring my pre-tax income to a 403b/401k/457b/trad IRA may actually be better than a Roth equivalent retirement account since I'd essentially be saving 15% up front by lowering my AGI.

So, what do you think is better - deferring pre-tax income to "save" 15% that would otherwise go towards IBR payments OR "paying" 15% on this money to get it into a Roth?

Right now, I'm maxing out my 403b at $18k AND maxing out my Roth IRA annual contribution at $5.5k but next year I will have access to a 457b so not sure of the $5.5k would be better off in the 457b or Roth IRA. Ideally, I'd max all of these accounts but that is hard on resident salary in SoCal...