How Do Your Taxes Change When You Get Married?
Getting married can transform every aspect of your life and that includes taxes. You and your spouse may not even consider the tax benefits of marriage when you exchange vows but the tax breaks couples can enjoy when filing jointly can have big impacts on your financial future.
Your taxes will most certainly change after you get married and this can affect everything from how much money you can save for retirement to student loans. The tax changes you experience when you get married will depend on your unique situation.
What to Do with Taxes when You Get Married
The IRS doesn’t care about what day you get married. If you are married by December 31st of the tax year then you are considered married for the entire year. So no matter when you have your ceremony, your taxes change when you get married. A spring wedding means you have almost a whole year to prepare for filing while a fall wedding means you have less time to prepare. There are some things to do after getting married to help you prepare for tax time.
If You Want to Change Your Name - Do It Fast
If you or your spouse are planning a name change then head to your local Social Security office as soon as possible. You need to bring your marriage certificate to show evidence that you are able to change your name. When you get your new Social Security card, it will have your new name on it. This is necessary because the name on your tax return needs to match the name the Social Security Administration has for you on file.
Form 822
Be sure to update the IRS with your new address if you are moving in with your new spouse. You can file Form 822 to update this. The IRS will usually mail the refund check to your last known address so not updating yours could mean that you don’t get your refund. Be sure to alert all other parties of your address change so that you don’t miss any important forms being mailed to you come tax time.
Update Your W-4
Update your W-4 with your employer. This form is the one that is used to calculate the amount of tax withheld from your paycheck throughout the year. When you were single, you likely only took once allowance but now you can take one for yourself and your spouse. When you adjust your allowances, you may avoid overpaying taxes throughout the year. Less money will be withheld from your paychecks if you are married or you increase your allowances.
If you have been getting health insurance through a state or federal marketplace, you also need to update your marital status there. If you have been getting subsidies due to your income then that may change since your income profile is now different.
Get a Professional to Help You
When determining how your taxes change when you get married, you may want to speak to a professional. The tax code can be complicated so it is always good to get some extra help. A professional can give you tax tips as well for any future filings.
Filing Statuses
One of the many ways your taxes change when you get married is with a new filing status. There are different ones to choose from.
Married Filing Jointly
This is one of the two filing statuses that you will have for married couples. It results in a single return for both spouses with deductions and incomes combined.
Married Filing Separately
This is another filing status married people can choose where each spouse files their own tax return. This keeps deductions and incomes separate.
Qualifying Widower or Widow with Dependent Children
If you maintain a home for a year and have a dependent child and your spouse dies, you can still file separately or jointly for the tax year in which your spouse dies. After that, you have two years that you can have qualifying widow filing status, as long as you have dependent children and are maintaining a home. This status can give you some relief and allow you to use the same deductions as the married filing jointly status.
What You Should Know about Filing Jointly
When you get married, you are not able to file taxes as single or as head of household. This is one of the ways your taxes change when you get married. You will need to choose between married filing jointly or married filing separately. Usually, it’s best to file jointly. If you were filing as a single person but now are filing jointly then most of the calculation amounts are doubled.
Under the new tax code, there is usually no situation where you are able to file separately and still pay less in taxes. This is because the marriage penalty has been eliminated for most people. It’s possible that you may owe money on the months you spent single. Since you are considered married for the whole year you could have under-withheld during the portion of the year when you were still single.
This is especially true for couples who get bumped into a higher tax bracket due to joint income. Ultimately, you could end up paying more in taxes to make up for what you didn’t pay while in the lower, single person bracket. Most married couples tend to fall on the side of fitting into a lower tax rate at the higher combined incomes but it’s still something to keep in mind.
When Should You File Separately?
While it makes sense to file jointly in most situations, there are still some situations where it makes sense to file separately because your taxes change when you get married. One situation in which this makes sense is if your spouse has a ton of student loan debt and earns a much smaller income. If you have federal student loans and then file for an income-driven repayment plan to help ease the burden, the government will base your new payment off of the income that is reported on your tax return and this includes any jointly reported income.
You may also want to file separately for divorced or separated couples. This was one of the reasons why this status was created. Divorce or separated couples may not want to file their taxes jointly.
Money-Saving Tips for Filing Your Tax Return
With the way taxes change when you get married, it helps to know some money-saving tips when filing your return.
Review Restrictions on Married Filing Separately
When you file separately, it can prevent you from claiming student loan interest, education credits, earned income credits, and tuition deductions. You could either reduce your tax bill or raise it by filing separately. If you live in a community property state, such as Idaho, Arizona, Nevada, California, Wisconsin, or Texas, then you have to deal with other complicated rules about what is considered marital income and what is considered your income. Rules can vary by state.
Consider All Possible Tax Liens
One of the reasons that married couples do file separately is because they have prior debt. Filing separately because of tax liens may not be necessary. The couple can file forms each year with the joint tax return until the one with liens gets caught up on any debt. This keeps the spouse who doesn’t have any debt from being penalized and losing out on their share of the tax refund. By filing jointly, the couple is able to declare credits and deductions that aren’t available to those who are filing separately.
Consider the Income Factor
This is very important. When one spouse earns more than the other, the marginal tax rate for both can be one of the best ways taxes change when you get married. For example, Brad and Jane get married. Brad makes $55,000 a year as a marketing manager. Jane just completed her MBA and has a taxable income of only $8,000. If this couple didn’t get married then Brad would have to pay 22% of the taxable income. When filing jointly, the marginal tax rate doesn’t climb over 12%. The couple also gets credits and deductions they wouldn’t have gotten if filing separately.
If you aren’t sure what option is best based on how taxes change when you get married, you can prepare taxes for both filing options. Doing so could take an extra couple of hours of work with tax management software. However, the potential savings could be worth it. A less time-consuming strategy would be to ask an accountant which option is best based on individual circumstances.
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Tax Advantages of Getting Married
No one will likely suggest you get married for the tax advantages but there are some benefits for those who do tie the knot.
The Tax Bracket Can Be Lower Together
For many years, taxpayers complained that there was a marriage penalty. This happened when spouses earned similar salaries and pushed the couple into a higher tax bracket. Congress then took some steps to reduce the penalty and made the tax bill for married couples that file jointly closer to the total combined amount that they would have owed if they were single.
Depending on your incomes, there still may be a marriage penalty. However, if the taxpaying spouses have vastly different salaries then the lower one can pull the higher one into the lower bracket and it reduces overall taxes.
Your Spouse Could Be a Tax Shelter
The negative numbers of one person in the marriage can help both spouses. If one spouse is losing money in a business then he or she may not be able to take advantage of some deductions. However, the spouse that is making the money may be able to take those unused deductions.
Jobless Spouses Can Have an IRA
If you are a single taxpayer then you aren’t usually eligible to fund an IRA without paid work. A married taxpayer who doesn’t have paid employment can contribute to an IRA using joint income.
Couples Are Able to Benefit Shop
If both spouses are getting benefit packages from their jobs then they can usually pick the most valuable benefits. Usually, benefits differ between spouses and the right mixture from two plans can help increase tax savings.
Get Greater Charitable Contribution Deductions
There is a limit to the charitable contributions deductions based on income. However, married couples can raise the limit.
Marriage Can Protect the Estate
Being married can allow a wealthy person to protect the assets he or she leaves behind. Under federal tax laws, you are allowed to leave any amount of money to your spouse without generating an estate tax. This exemption can protect the deceased’s estate from taxation, at least until the surviving spouse dies. Being married means that each spouse is also able to give unlimited sums of cash and other assets without having to trigger any gift taxes.
Filing Can Take Less Time
If spouses are filing just one tax return then it will take less time to get all the paperwork together and cost less to prepare. You won’t have to worry about precise details, such as who paid property taxes or if a non-cash charitable contribution was given by you or your spouse. You just get to include all the information onto one tax return.
Itemized Deductions May Make Sense
When you are preparing your tax return, one of the ways your taxes change when you get married is that itemizing your deductions may be more beneficial. When you are filing jointly, not only are you combing your incomes but also your deductions. This may make itemizing make sense. Itemizing is often used if you are making a lot of charitable contributions.
The Home Sale Exclusion Is Doubled
For anyone selling a home, there is a powerful tax break if you have lived in it for at least two years preceding the sale. It will let a single person exclude up to $250,00 of the gain of the sale from taxable income. However, one of the ways taxes change when you get married is this exclusion is doubled. For married people, this increases to $500,000 if you file jointly. There are some rules that apply but this can be a huge tax saving.
Tax Disadvantages to Marriage
Even though there are plenty of benefits, there are also some downsides. Once you sign a joint tax return, you are responsible for every number and piece of information on it. If your spouse fudges a figure, you are responsible. It can be harder to reach the higher minimum percentages of income necessary to be able to deduct medical expenses. If there is a garnishment for unpaid child support or loans then a refund can be blocked or delayed.
The Marriage Penalty
Whether or not your taxes change when you get married for the worse with the marriage penalty, it will depend on your specific circumstances. There are some common situations where the marriage penalty may affect you.
Low Earners with Similar Incomes
Low earners can qualify for the earned income tax credit, which was designed to encourage work by giving a credit based on filing status and the number of children. When marriages increase the lower-earning partner’s income, this tax credit may phase out completely or decrease. Higher earning couples can have the luxury of ignoring the tax penalty and marrying anyway.
Higher Earners with Similar Incomes
Couples who earn between $612,350 and $1,020,600 jointly will pay more in taxes if they marry due to the federal tax bracket for married couples not betting twice as large for unmarried individuals. More of the income will get pushed into a higher tax bracket when the couple marries and more of it stays in the lower tax bracket if they don’t.
High Earners Getting Hit with the Medicare Surtax
The Medicare surtax applies to self-employment income, wages, and compensation over $200,000 for single taxpayers and only $250,000 for married taxpayers.
Higher Earners Hit with a Net Investment Income Tax
Like the Medicare surtax, you have to pay for income over $250,000 if you are filing jointly.
Homeowners with Large Mortgages
As a single taxpayer, you are able to deduct $750,000 of mortgage debt. As a married taxpayer, you can only deduct the same amount.
It’s not just a federal penalty and certain states also have penalties.
Civil Unions or Domestic Partners
If you are in a domestic partnership or same-sex relationship, in the eyes of the IRS these partnerships don’t count as marriages and don’t qualify you to file as spouses. However, if you do get married then you have the same tax benefits of any other couple.
Final Thoughts
Your taxes change when you get married. Whether or not you get the marriage benefits on your taxes or you have what is called the marriage penalty will be dependent on your unique situation. One of your major changes will be your filing status and you will have to decide if it makes more sense to file jointly or to file separately.
There are many advantages to filing jointly but you may also want to consider filing separately under certain circumstances. There are a few things you should do after you get married, such as updating your name, in order to make sure you are prepared for tax season.