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It may not sound as romantic as selecting wedding invitations or as thrilling as organizing your honeymoon.
However, understanding the tax implications of tying the knot is essential for your financial future as a couple.
Taxes can be a labyrinth of complexities even for the individual taxpayer, but when you throw marriage into the mix, things can get even more intricate.
Whether you’re soon to be married or a newlywed still basking in that post-honeymoon glow, it’s time to switch gears and think about the less glamorous but incredibly important world of taxes.
In this blog post, I’ll dive deep into the financial sea, deciphering tax codes, explaining jargon, and providing a comprehensive guide to understanding how marriage impacts your taxes.
Filing Status: Single vs Married
Single taxpayers are generally individuals who are unmarried, divorced, or legally separated.
The portion of income not subject to tax, also known as the standard deduction, is $12,950 for the 2022 tax year and $13,850 for the 2023 tax year.
The filing status impacts the available deductions and credits and the tax bracket an individual falls in.
Married Filing Jointly
Married couples can file their taxes jointly, combining their incomes on a single tax return. This option typically results in a lower overall tax liability than filing separately.
When filing jointly, the standard deduction is doubled, allowing couples to withhold a larger portion of their income from taxation.
The tax brackets for married filing jointly are structured to provide some relief from the “marriage penalty,” where the spouses’ combined income would result in a higher tax rate than if they were single.
- Standard deduction for married filing jointly in 2022: $25,900
- Standard deduction for married filing jointly in 2023: $27,700
Married Filing Separately
Married couples can file their taxes separately, reporting only their incomes and deductions.
This option may benefit couples with a large income discrepancy or who want to avoid being held responsible for each other’s tax liabilities.
However, married filing separately often results in a higher overall tax liability than filing jointly. Additionally, some tax credits and deductions may not be available when filing separately.
Your tax filing status can significantly affect your tax return, so choose the one that best suits your situation.
Understanding Tax Brackets and Rates
When discussing taxes, it’s essential to understand how tax brackets and rates work.
In the US, the Internal Revenue Service (IRS) uses a progressive tax system, meaning that as your income increases, so does your tax rate.
There are currently seven tax brackets in which your income can fall. Marriage can affect your tax brackets and rates, as you can file your taxes jointly or separately.
Filing jointly usually means combining your incomes and using the tax brackets for married couples filing together.
For example, let’s say your taxable income is $90,000, and your spouse’s taxable income is $30,000. When filing jointly, your combined income is $120,000.
Depending on the current tax brackets, this could place you in a lower tax bracket than filing separately.
However, it’s important to note that not all married couples will benefit from filing jointly.
In some cases, high-income couples might face a “marriage penalty” when combining their incomes.
This occurs when the tax threshold for married couples is not double the threshold for single taxpayers.
To determine the best filing option for your situation, being familiar with the current tax brackets and rates is helpful.
Remember that these brackets are adjusted annually for inflation, so it’s crucial to stay up-to-date on the latest tax changes.
Standard Deductions, Deductions, and Credits
Standard Deduction for Married Couples
When you get married, your tax filing status changes, affecting your standard deduction.
Couples who file their taxes jointly, known as married filing jointly, have a higher standard deduction compared to single filers.
In 2023, the standard deduction for a joint return is $25,900. This amount is higher than the standard deduction for single filers, which is $12,950.
The standard deduction helps reduce your taxable income and, consequently, the amount of tax you owe.
Even if one spouse has no income or deductions, you can still file a joint return and benefit from the higher standard deduction.
Tax Deductions and Credits
Besides the increased standard deduction, married couples may also qualify for various tax deductions and credits that would not be available to single filers.
Some of these tax benefits include:
- Dependent exemptions: If you have children or other dependents, you can claim an exemption for each dependent on your joint tax return. This further reduces your taxable income.
- Child Tax Credit: Married couples with children may qualify for the Child Tax Credit, which can reduce your tax bill or increase your tax refund. The credit amount varies depending on your income and the number of qualifying children.
- Child and Dependent Care Credit: If you and your spouse both work or look for work and pay for child care for a dependent under 13 years old, you may be eligible for the Child and Dependent Care Credit. This credit lowers your tax bill according to the amount you spend on child care, up to certain limits.
- Earned Income Tax Credit (EITC): If you’re a married couple with low to moderate income, you might qualify for the EITC, which can reduce your tax liability or result in a refund. The credit amount depends on your income, filing status, and the number of qualifying children.
- Education tax credits: Married couples may be eligible for education tax credits, such as the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC), for qualified educational expenses paid for themselves, their spouse, or their dependents.
Changes to Income and Withholding
Adjusting Withholding on Form W-4
After getting married, couples need to adjust their withholding.
Newlyweds should provide their employers with a new Form W-4, Employee’s Withholding Allowance, within 10 days of getting married.
This form will help your employer determine the correct amount of federal income tax to withhold from your paychecks.
Impact on Taxable Income
Marriage can affect your taxable income. When married couples file a joint tax return, their incomes are combined, which might move one or both individuals into a higher tax bracket.
On the other hand, if one spouse earns more, they may find themselves in a lower tax bracket due to the combined income.
This tax bracket change can result in potential tax benefits or increased tax liabilities for couples.
Adjusted Gross Income
Your Adjusted Gross Income (AGI) is your total income minus certain deductions.
When you get married, your AGI will be the combined income of yourself and your spouse, minus any eligible deductions.
This combined AGI can impact your eligibility for certain tax credits and deductions, which you should be aware of when filing your joint return.
Combining incomes on a joint return can have both positive and negative effects on taxes:
- If both spouses work and have similar incomes, combining them might push you into a higher tax bracket.
- If one spouse earns significantly more than the other, the combined income might result in a lower tax bracket for the higher-earning spouse.
- These changes in income and withholdings are important to consider for all married couples, whether newlywed or not. Remember to update your Form W-4 and ensure you’re on track for your current tax situation.
Social Security and Name Changes
When getting married, it’s crucial to consider how name changes will affect your taxes. Updating your records with the Social Security Administration (SSA) is essential in this process.
Updating Social Security Administration Records
After a name change due to marriage, it is important to report the change to the SSA as soon as possible. The name on your tax return must match the name on file at the SSA.
If it doesn’t, this could delay any tax refund. To update your information with the SSA, you’ll need to file Form SS-5, Application for a Social Security Card.
Application for a Social Security Card
Form SS-5 is the official document used to apply for a new or replacement Social Security card. Here are the key steps involved in completing and submitting this form:
- Obtain a copy of Form SS-5 from the SSA’s website or a local office
- Complete the form with accurate and up-to-date information
- Provide necessary documents to prove your identity, such as birth certificates or passports
- Submit the completed form and supporting documents either by mail or in person at a local SSA office
It is essential to allow a minimum of 10 days after submitting Form SS-5 before filing your tax return.
This waiting period allows the IRS database to update with the most recent changes to your records and ensures a smooth tax filing process.
Updating your Social Security Administration records and obtaining a new Social Security card after a name change is crucial for avoiding delays or issues when filing taxes after marriage.
Be sure to plan ahead and allow sufficient time for these updates to be processed.
Address Changes and U.S. Postal Service
Change of Address with the IRS
When you get married, you may experience changes in your living situation, including a change of address.
It is essential to inform the Internal Revenue Service (IRS) about your new address to ensure you receive important tax documents and updates.
To do this, simply complete and submit the IRS Form 8822, which is specifically used for address changes.
Notifying the U.S. Postal Service
In addition to updating your address with the IRS, it’s important to notify the U.S. Postal Service (USPS) of your new location.
This will ensure that your mail is forwarded to your new address, minimizing the risk of missing essential communications. To do so, you have two main options:
- Online: Visit the USPS website at USPS.com and follow the steps to change your address and set up mail forwarding.
- In-person: You can also visit your local post office and complete the necessary forms to notify them of your address change.
Marriage Penalty and Bonus
Understanding the Marriage Penalty
The marriage penalty is when a couple’s combined tax burden increases after getting married and filing joint tax returns.
It usually affects high- and low-income earners with similar incomes. Taxpayers at higher income levels can encounter even larger penalties.
For example, the highest tax rate of 37% applies when married couples filing jointly have taxable income exceeding $647,850, while for single taxpayers, it applies to those earning over $539,900 (tax year 2022).
Marriage Tax Bonus
On the other hand, the marriage bonus occurs when a married couple enjoys a lower combined tax burden than they would have had if filing as single individuals.
This bonus often affects middle-income couples with disparate incomes. In general, the greater the income disparity between the partners, the better the tax bonus.
The marriage penalty and bonus lead to varying impacts on the combined tax burdens of married couples.
The penalty typically affects those with high or similar incomes, whereas the bonus is more common for couples with unequal incomes.
Tax rules and brackets may change, so it’s important to stay updated and consult with tax professionals to ensure you understand and plan for the potential tax implications of marriage.
Student Loan Interest and Education Credits
Student Loan Interest Deduction
When you get married, the way you file your taxes may impact your ability to claim the student loan interest deduction.
This deduction allows eligible individuals to reduce their taxable income by the amount of interest paid on qualified student loans.
In general, you can claim this deduction if you are filing as single, married filing jointly, head of household, or qualifying widow(er).
However, if you are married and choose to file separately, neither you nor your spouse can claim the student loan interest deduction.
It is essential to weigh the pros and cons of filing jointly versus separately to determine the best approach for your specific situation.
Education Credits: American Opportunity and Lifetime Learning
Two education credits can help reduce the financial burden of education expenses for students and their families: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). These credits can be affected by your marital status and filing status.
American Opportunity Tax Credit (AOTC)
The AOTC is a partially refundable credit for qualified education expenses, such as tuition and fees, during the first four years of higher education.
The maximum credit per eligible student is $2,500 per year, with up to $1,000 being refundable.
*Married couples filing jointly can claim the AOTC if their modified adjusted gross income (MAGI) is $160,000 or less.
If their MAGI is between $160,000 and $180,000, they can claim a reduced credit. However, married couples filing separately are not eligible for the AOTC.
Lifetime Learning Credit (LLC)
The LLC is a nonrefundable credit for qualified education expenses, regardless of the number of years of post-secondary education. The maximum credit per taxpayer is $2,000 per year.
*Married couples filing jointly can claim the LLC if their MAGI is $118,000 or less.
If their MAGI is between $118,000 and $138,000, they can claim a reduced credit. Like the AOTC, married couples filing separately are not eligible for the LLC.
IRA Contributions, Estate Tax, and Gift Tax
IRA Contributions for Married Couples
Getting married generally does not affect your ability to contribute to your Individual Retirement Account (IRA).
Both spouses can continue contributing to their Roth IRAs with the same limits as before marriage:
- $6,000 in 2022 and $6,500 in 2023
- $7,000 for individuals aged 50 or older in 2022
In the case of inheriting an IRA, the rules may vary depending on the type:
- Inherited Roth IRA: Withdrawals are typically tax-free
- Inherited traditional IRA: Withdrawals are subject to ordinary income taxes
Estate and Gift Tax Implications
Some essential points about estate and gift taxes after getting married include:
- Unified rate schedule: The Gift Tax and Estate Tax provisions apply a cumulative rate schedule to a person’s taxable gifts and estate when determining the tentative net tax.
- Applicable exclusion amount: Any tax due is determined after applying a credit based on an applicable exclusion amount.
When it comes to lifetime gifting, the annual gift tax exclusion can help reduce your taxable estate:
- In 2023, you can give any individuals up to $16,000 each without incurring a taxable gift ($32,000 for spouses “splitting” gifts). This limit was $15,000 in 2021.
- Recipients usually owe no taxes and do not have to report the gift unless it comes from a foreign source.
Health Insurance, Tax-Favored Fringe Benefits, and Charitable Contributions
Health Insurance Coverage for Married Couples
When you get married, you may have the opportunity to join your spouse’s health insurance plan or combine both of your individual plans into a family plan.
This can lead to potential savings, as family plans tend to have lower premiums per person compared to individual plans.
Paying for premiums with pre-tax dollars through an employer-sponsored plan can provide significant tax advantages, reducing your taxable income and overall tax liability.
Tax-Favored Fringe Benefits
Employer-provided fringe benefits, including health reimbursement arrangements (HRAs) and health savings accounts (HSAs), can offer further tax advantages for married couples.
Contributions to these accounts are generally made with pre-tax dollars and can be used for various qualified medical expenses, such as copayments, deductibles, prescription medications, dental and vision care.
According to IRS Publication 15-B, fringe benefits, including HRAs and HSAs, may be excluded from taxation as long as they meet specific exclusion criteria.
Combining these tax-favored accounts with your health insurance coverage can help lower your taxes and increase your overall financial well-being.
Charitable Contributions Deduction
Married couples who choose to itemize their deductions on their tax returns can also take advantage of the charitable contributions deduction.
When you make a donation to a qualified charitable organization, you can deduct the value of your contribution, subject to certain limitations.
The deduction limit for cash contributions is 60% of your adjusted gross income, while non-cash contributions typically have a limit of 50% of your adjusted gross income.
To maximize the tax benefits of your charitable contributions, follow these steps:
- Determine whether itemizing your deductions will provide a greater tax benefit than taking the standard deduction.
- Ensure that your chosen charitable organization is a qualified tax-exempt organization.
- Keep accurate records of your donations, such as receipts or written acknowledgments.
- Obtain appraisals for donated property valued at more than $5,000.
Tax Tips for Newlyweds
As newlyweds, it’s essential to understand how your new marital status will affect your taxes. Here are some tax tips and considerations for married couples:
One of the first decisions you must make is whether to file your taxes jointly or separately.
In most cases, filing jointly results in more tax benefits, including higher income thresholds for certain tax credits and deductions.
However, in some situations, filing separately may be more advantageous, specifically if one spouse has significant deductions or outstanding debt.
Name and Address Changes
If either spouse changes their name or address after getting married, it’s essential to report these changes to the Social Security Administration (SSA) and the United States Postal Service.
A mismatch between the name on your tax return and the name on file with the SSA might cause delays or problems with your tax return.
Adjust Your Withholdings
Married couples should review their withholding allowances and update their W-4 forms accordingly.
Doing so will help ensure you don’t owe taxes or receive a larger refund than expected. You can use the IRS withholding calculator to determine the appropriate amount to withhold.
New Tax Privileges
Getting married may qualify you for new tax breaks, such as the ability to claim the Lifetime Learning Credit or the Earned Income Tax Credit, depending on your income levels.
It’s important to review your eligibility for these credits and deductions now that you’re married.
Injured Spouse Allocation
If one spouse has outstanding debt, like past-due child support, back taxes, or student loans, married couples can file Form 8379 with their joint tax return.
This will help protect the other spouse’s refund from being used to pay off the other’s outstanding liabilities.
Let me recap some important points for newlyweds as they navigate their new tax situation:
- Stay organized by keeping all relevant financial records and receipts in one place. This will make tax time much easier.
- Consider consulting with a tax professional, particularly if you’re unsure how your marital status affects your taxes.
- Communicate openly with your spouse about your financial situation and tax obligations to avoid surprises come tax time.
By following these tax tips for newlyweds, you’ll be well-prepared to navigate your new tax situation and potentially reap the benefits of your new marital status.