M4: Advantage of filing taxes even with no income to report?

[openstage]

I heard that there could be some benefits to filing income taxes for your m4 year, but I haven't gotten a clear answer on why. Maybe something to do with loan repayment starting next year? I have no children, no out-of-pocket expenses, no earned income credit.

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[differentiating]

I filed taxes my MS4 year because I had income of $0, and thus I could do income-based payments of $0 that counted toward the payments needed to qualify for PSLF/loan forgiveness after waiving the deferral period. If you're not planning to do PSLF, I'm not sure if it really matters.

 

[Dr. Vinnie Boombatz]

As mentioned, it allows you to have a year of $0 loan repayments that also count towards PSLF. In the past, this was a double-edged sword because under the REPAYE plan, you would still accumulate 50% of unpaid interest on your loans while the government paid the other 50%, so paying $0 might not have been the best plan if you weren't going for PSLF, since you were gaining interest. However, under the new SAVE plan, the government pays 100% of any interest accrued beyond your minimum payment. So if you are paying $0, the government pays off all interest.

Specifically as to how you get that $0 payment, the form to sign up for an IDR asks: "Has your income significantly decreased, or your marital status changed since you filed your last federal income tax return?" If no then you can attach your most recent tax filings. If you don't have tax filings within the last two years then you have to answer: "Do you currently have taxable income?" Since you will have a resident's salary at that point, it becomes a little morally, and legally, gray to say no.

 

[Dr. Anonymouss]

Do it! You will thank us later. When you apply for SAVE program you’ll be paying 0 dollars for loans while still contributing to your PSLF

 

[mrbreakfast]

Welcome to post-graduate medical training. For the foreseeable future - potentially for the next decade or more - it will behoove you to (with legal limits) report as little income as possible, often as late in the year as possible.

Over the course of your medical education, paying "this year's payments based on last year's wages" will save you a substantial amount of money.

 

[Hollow Knight]

Everyone has said this I think but just to reiterate: you want to file for taxes M4 year with an income of $0 so your loan payments are $0 that first year of residency.

If you're married, do married filing separately

 

[Chromium Surfer]

Everyone has said this I think but just to reiterate: you want to file for taxes M4 year with an income of $0 so your loan payments are $0 that first year of residency.

If you're married, do married filing separately

for people who complete a research year before M4 and subsequently earn income for the first half of the calendar year that their M4 year is in you cannot file your taxes with an income of $0 right? If you are married its also always better to file married filing separately im assuming but during the year before your M4 should you also file separately to build a trail of being separate for tax purposes or does it not really matter except for the M4 year? Thanks for reading!

 

[Dr. Vinnie Boombatz]

for people who complete a research year before M4 and subsequently earn income for the first half of the calendar year that their M4 year is in you cannot file your taxes with an income of $0 right? If you are married its also always better to file married filing separately im assuming but during the year before your M4 should you also file separately to build a trail of being separate for tax purposes or does it not really matter except for the M4 year? Thanks for reading!

How much are you making in that half year? If it's a sizable amount you'll need to pay taxes on it anyway. The yearly SAVE payment is Adjusted gross income (AGI) - 225% of the federal poverty level (FPL). Odds are your research pay isn't enough to make that number more than 0. Again, if it is you should be paying taxes anyway. I don't know much about filing separately or jointly. But, if you and your spouse file jointly your loan repayment will be based on your household income. If filing jointly saves you two more than the increase in loan repayment, then do that. If not then don't.

 

[Hollow Knight]

for people who complete a research year before M4 and subsequently earn income for the first half of the calendar year that their M4 year is in you cannot file your taxes with an income of $0 right? If you are married its also always better to file married filing separately im assuming but during the year before your M4 should you also file separately to build a trail of being separate for tax purposes or does it not really matter except for the M4 year? Thanks for reading!

I actually don't know the answer to this. I personally have always filed taxes, and I've never made more than $15 an hour. But maybe that wasn't necessary back then.

Even if you have a little income as an M4, your payments will be better than using your spouse's for example.......

 

[mrbreakfast]

for people who complete a research year before M4 and subsequently earn income for the first half of the calendar year that their M4 year is in you cannot file your taxes with an income of $0 right?

Correct, unless you are willing to risk committing tax fraud...making a few thousand dollars will have very little impact.

If you are married its also always better to file married filing separately im assuming but during the year before your M4 should you also file separately to build a trail of being separate for tax purposes or does it not really matter except for the M4 year?

This is an individual question, but if you are married there are very few financial situations in which it makes sense to file separately, and this would very likely not be one of them. The difference in loan payments from filing separately would be dwarfed by the potential savings from filing together, i.e. your spouse's taxes on their income from filing separately are very likely to exceed the combined cost of taxes on your filed-jointly income + your loan payments.

One possible exception would be if you and your spouse are both medical students, both with loans to pay, and both with income of <$11,000, for example. Then, filing separately may be beneficial. But you should do the math for your own situation.

 

[mrbreakfast]

Even if you have a little income as an M4, your payments will be better than using your spouse's for example.......

The purpose of filing jointly is that while it would increase your payments, filing jointly may save your household thousands of dollars in taxes on your spouse's income. I would not recommend a married filing separately return unless you are certain you know what you are doing.

 

[Chromium Surfer]

How much are you making in that half year? If it's a sizable amount you'll need to pay taxes on it anyway. The yearly SAVE payment is Adjusted gross income (AGI) - 225% of the federal poverty level (FPL). Odds are your research pay isn't enough to make that number more than 0. Again, if it is you should be paying taxes anyway. I don't know much about filing separately or jointly. But, if you and your spouse file jointly your loan repayment will be based on your household income. If filing jointly saves you two more than the increase in loan repayment, then do that. If not then don't.

I actually don't know the answer to this. I personally have always filed taxes, and I've never made more than $15 an hour. But maybe that wasn't necessary back then.

Even if you have a little income as an M4, your payments will be better than using your spouse's for example.......

Correct, unless you are willing to risk committing tax fraud...making a few thousand dollars will have very little impact.


This is an individual question, but if you are married there are very few financial situations in which it makes sense to file separately, and this would very likely not be one of them. The difference in loan payments from filing separately would be dwarfed by the potential savings from filing together, i.e. your spouse's taxes on their income from filing separately are very likely to exceed the combined cost of taxes on your filed-jointly income + your loan payments.

One possible exception would be if you and your spouse are both medical students, both with loans to pay, and both with income of <$11,000, for example. Then, filing separately may be beneficial. But you should do the math for your own situation.

The purpose of filing jointly is that while it would increase your payments, filing jointly may save your household thousands of dollars in taxes on your spouse's income. I would not recommend a married filing separately return unless you are certain you know what you are doing.

Thank you all for your responses! My spouse will make about 70k this year and for the half of this year where I'll be completing the research year I will make no more than 14k but at least 7k and taxes are already being taken out of my paycheck and I have a high withdrawing rate. I definitely was not planning on committing tax fraud lol. I should have rephrased my question to ask if my income from the research year will significantly increase my payments vs if I had $0 in come.

I actually was considering filing separately since there was such a huge discrepancy in the income between my spouse and my wife and I thought that the savings on loan payments would make it worth it. Thank you for sharing this insight.

I do my own taxes every year with turbotax so I was going to run the numbers filing separately and jointly too see what they came up as. Mrbreakfast do you have a good resource or website where I can read how to calculate how much my loan payments would be in each situation?

Also does anyone have insight on if my situation is advantageous to file separately if if its important to do that two years in a row vs one?

thanks all!

 

[mrbreakfast]

SAVE IDR Plan Calculator - EDCAPNY.org for example.

I would suggest running the numbers as you are already planning. Your income in 2024 of, let's say $10,000, will likely result in payments of $0 if you were filing individually.

When you run the numbers, consider that money paid to taxes and money paid toward your loan are not equal. I would not necessarily emphasize minimizing loan payments (unless you are 100% going for PSLF) when, as a resident, your loan interest is ticking. Keep in mind that (again, if you are not doing PSLF) any money put toward your loan now, even if it just reduces the interest, can be though of as saving money in the future; money spent on taxes is gone for good.

This is a very personal/individualist question for which it is worth doing the math. Best of luck.

Also does anyone have insight on if my situation is advantageous to file separately if if its important to do that two years in a row vs one?

If you do calculations that determine a possible benefit to filing separately for 2024, you'd have to repeat this each year to ensure it still makes sense. I would be very surprised if filing separately is beneficial when you have a full year of resident salary to report.

 

[Dr. Anonymouss]

The save plan utilizes 225% the poverty line so it for simplicity it’s like a standard deduction of around 33,000. If you make less than this you pay zero, if you make more than this you pay 5% on undergrad loans and 10% on grad loans. If you file separately then you will pay nothing if you file jointly then you will pay loans. So it’s a no brainer

 

[sloop]

If you're married, do married filing separately

All of the other advice in this thread is good, but this is not necessarily good advice. It really depends on how much you make in comparison to your spouse. If your spouse makes about as much as you do as a resident or more, your advice is very likely the case. If your spouse does not make any money or makes little, it is almost certainly not the case. By filing separately in the latter case, you will be in higher marginal tax brackets. Additionally, most residents without significant spousal income will be taking the standard deduction and, by filing separately, will be unable to take advantage of the larger married deduction by applying it to the top combined tax bracket. Instead, the lower earning spouse will be applying their deduction to a lower top tax bracket. Finally, the income-based plans including SAVE adjust for family size. You cannot include your spouse in your family size if you file separately. With the same income, being able to say your family size is two rather than one will reduce your payment.

The end result of this is that everybody has to run the numbers in their particular situation. They need to look not just at their monthly payment but also their tax situation. If they are pursuing PSLF, they should choose whatever status results in the lower combined aggregate of tax due and loan payments.

 

[Chromium Surfer]

If you do calculations that determine a possible benefit to filing separately for 2024, you'd have to repeat this each year to ensure it still makes sense. I would be very surprised if filing separately is beneficial when you have a full year of resident salary to report.

sorry to clarify so since I am taking a research year I am now graduating in 2025. So I was asking when filing for my 2024 taxes assuming married filing separate is better then should I also do this for my current 2023 taxes that are due so that I have a 2 year history?

of this or does that not really matter and is it more of a year by year proposition based on the incomes of both spouses where prior history won't affect any eligibility for various savings plan enrollment options etc.

 

[mrbreakfast]

sorry to clarify so since I am taking a research year I am now graduating in 2025. So I was asking when filing for my 2024 taxes assuming married filing separate is better then should I also do this for my current 2023 taxes that are due so that I have a 2 year history?

of this or does that not really matter and is it more of a year by year proposition based on the incomes of both spouses where prior history won't affect any eligibility for various savings plan enrollment options etc.

I'm not sure I necessarily understand your question, but to my knowledge, how you file in 2023 does not affect at all how your payments down the line will be affected. Your income in 2023 will not affect your income recalculation in 2024, etc.

Keep in mind the goal of these repayment programs is not to extract as much money from you as possible, but to charge you an amount that you can reasonably pay. They do not care one bit if you file jointly or separately to affect your loan payments now. From the loan collector's perspective, they are happy to charge you $0 payments for some time (and will offer you this for the beginning of residency).

As I noted above, unless you are 100% doing PSLF, consider that reducing your loan payments does not, in fact, save you money. It just creates a slightly larger bill you will have to pay later.

It is a general statement that you will receive a lot of financial advice over the next few years from colleagues and strangers both, some of which is good and some of which is not. This forum is probably not the best source for financial advice - physicians are notoriously bad with money, and medical students are probably worse. I suggest you run the numbers on many situations (including years down the line) and do some research on your own.

 

[Chromium Surfer]

I'm not sure I necessarily understand your question, but to my knowledge, how you file in 2023 does not affect at all how your payments down the line will be affected. Your income in 2023 will not affect your income recalculation in 2024, etc.

Keep in mind the goal of these repayment programs is not to extract as much money from you as possible, but to charge you an amount that you can reasonably pay. They do not care one bit if you file jointly or separately to affect your loan payments now. From the loan collector's perspective, they are happy to charge you $0 payments for some time (and will offer you this for the beginning of residency).

As I noted above, unless you are 100% doing PSLF, consider that reducing your loan payments does not, in fact, save you money. It just creates a slightly larger bill you will have to pay later.

It is a general statement that you will receive a lot of financial advice over the next few years from colleagues and strangers both, some of which is good and some of which is not. This forum is probably not the best source for financial advice - physicians are notoriously bad with money, and medical students are probably worse. I suggest you run the numbers on many situations (including years down the line) and do some research on your own.

Will do thank you very much for your thoughtful responses and including the link to the calculator as well!

 

[Dantes]

When you run the numbers, consider that money paid to taxes and money paid toward your loan are not equal. I would not necessarily emphasize minimizing loan payments (unless you are 100% going for PSLF) when, as a resident, your loan interest is ticking. Keep in mind that (again, if you are not doing PSLF) any money put toward your loan now, even if it just reduces the interest, can be though of as saving money in the future; money spent on taxes is gone for good.

Caveat being if you're on the SAVE plan, any interest that isn't covered by your loan payment is subsidized: https://studentaid.gov/articles/6-things-to-know-about-save/#government-interest-subsidy