Did you know that filing taxes with Married Filing Separately status can sometimes be extremely advantageous? (No, you do not have to actually be separated!)
While most of the time filing jointly comes out the best, the past two years with the recovery rebate credits (previously called EIP stimulus payments), have been a big reason why filing separately could actually result in a much bigger refund overall.
For instance, if the parents had income over the upper threshold amount to be eligible for the recovery rebate credit, the lower earning parent could file separately, take the children as dependents, and claim the full recovery rebate.
Another example: some would call this a "loophole":
Parents had already received $1400 per child for the third stimulus payment, in March 2021. This payment is considered split between the parents 50/50. When filing their 2021 tax return, one parent can claim 50% of the recovery rebate credit of each child, while taking the child as a dependent.
This is because 50% had never been paid to that parent - and the other parent does not have to return the other half, either. There is no "clawback", even if the other parent had ended up with income over the upper threshold amount.
The IRS had to leave this possibility open, understandably, for couples who separated or divorced in 2021 or early 2022. The parent with custody of the children would understandably want to claim the rest of the credit attributable to them, which they had not gotten yet. Though no limitation has been made for married couples taking advantage of this possibility, so this is a valid option.
This can result in a big refund for families with many children! For instance, family with 5 children, $1400 X5 divided by 2 =$3500
Of course, all the detriments of filing separately status would have to be taken into account, to arrive at a conclusion which filing status is the best.
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