I have an IRS lien on my refund for student loan debt and am married. Should we file married filing separate to save my wife's return from garnishment?

That's not necessary, but it could make things easier depending on your situation. There are some things you couldn't claim on your return using the married filing separate (MFS) filing status. If you don't have any children and you don't have any credits that would be affected by the MFS status, then it would probably be easier to file separately.

If you do have children or credits you'd be missing out on and want to file joint, then you can do that and the non-debtor can file the form 8379 Injured Spouse Allocation. This form allows the non-debtor to show what portion of the income on the return is theirs and that percentage of the refund will also be hers and not eligible for your debts. They may take the entire refund even if you submit the form with the return, but just send it in again in response to the notice or go down to your local IRS office. This will split the refund according to her income percentage. It doesn't matter who paid more tax, just who has what percentage of income in determining the injured spouse claim.

For example, let's pretend that you make $25,000 and only have $1,000 withheld for federal taxes. Let's pretend that your spouse also makes $25,000 and has $1,600 withheld for federal taxes. Then let's say that you file jointly and since you have a kid, your net tax liability is only $800, so you're claiming a refund of $1,800. The injured spouse claim would be for 50% of the refund ($800) because each of you has 50% of the income on the joint tax return. It can be the more favorable option if MFS would disallow you from claiming certain credits. If either decides to adjust their withholding down, remember to make sure you're having enough withheld to cover your taxes if you don't want to owe at the end of the year.