Marriage Tax - Married and filing taxes
Did you get married this year? Congratulations! Getting married is a big step in your life and will also impact your tax return. Take a look at some important information and details when planning for or preparing your tax return now that you are a married person:
Filing Status Now That You Are Married
Your filing status is important and is used for many things on your tax return, such as determining your standard deduction, whether you must file a return, and the amount of tax you owe. It will also be used in deciding whether you qualify for deductions and credits.
Your filing status depends partly on your marital status on the last day of your tax year. If you're legally married as of December 31, you're considered to have been married for the full year and must file as either married filing jointly or married filing separately. For federal tax purposes, a marriage means only a legal union between a man and a woman as husband and wife.
If you are married, you and your spouse can file a joint return. If you file a joint return you both must include all your income, exemptions, deductions, and credits on that return. Even if you or your spouse had no income or deductions, you can file a joint return.
If you and your spouse file separate returns, you should each report only your own income, exemptions, deductions, and credits on your individual return. You can file a separate return even if only one of you had income. However, the married filing separately status rarely works to lower the family tax bill. For example, you can't have one spouse itemize and claim all the deductions while the other claims the standard deduction. Both husband and wife must either itemize or use the standard deduction. You can't mix and match.
If you file separate returns with your spouse:
- You should itemize deductions if your spouse itemizes deductions, because you cannot claim the standard deduction,
- You cannot take the credit for child and dependent care expenses in most instances,
- You cannot take the earned income credit,
- You cannot exclude any interest income from qualified U.S. savings bonds that you used for higher education expenses,
- You cannot take the credit for the elderly or the disabled unless you lived apart from your spouse all year,
- You may have to include more income from Social Security benefits (including any equivalent railroad retirement benefits) you received during the year,
- You cannot deduct interest paid on a qualified student loan,
- You cannot take the education credits (the Hope and lifetime learning credits),
- You may have a smaller child tax credit than you would on a joint return, and
- You cannot take the exclusion or credit for adoption expenses in most instances.
The Marriage Penalty and The Marriage Bonus
You've probably heard about the marriage tax penalty: that a married couple pays more income tax than they would have to if they remained single. But most folks don’t know that married couples get a marriage bonus, paying less income tax than they would if each partner were single. This is because of the graduated nature of the tax rates, which applies higher tax rates to higher levels of income. When you have joint incomes on a joint return, it can push some of that income into a higher tax bracket. In recent years, Congress has made large strides toward alleviating the marriage penalty. The top of the 10% and 15% brackets on joint returns are now precisely twice as high as the ceilings on single returns (they used to be less than double). As higher incomes fall into higher tax brackets, the breakpoints on a joint return aren't quite double the level on a single return. That might impose a marriage penalty, but it doesn't necessarily happen. If the spouses' incomes are unequal, it is possible that combining them on a joint return will pull some of the higher-earner's income into a lower tax bracket. That's where much of the marriage tax bonus comes from—the fact that one spouse often makes much more income than the other. How this affects your tax return depends on how big the difference is between your income and that of your spouse.
Remember To Modify Your Withholding
Just remember, once you’ve tied the knot, you and your new spouse will need to adjust the withholdings from your paychecks. To determine how many withholding allowances to which you are entitled after marriage, see Publication 919, How Do I Adjust My Tax Withholding?
Once you determine the number of allowances, you can divide them however you choose between you and your spouse, recognizing that each allowance is worth more (in terms of reduced withholding and increased take-home pay) to the higher-earner.
Don’t make the mistake that many working couples do. Working spouses usually need to worry more about under-withholding than over-withholding. Take a look at the W-4 instructions. They include a worksheet that will walk you through the process of eliminating allowances. Your goal is to match withholding with what you'll actually owe for the year, so you get neither a big refund nor a nasty tax surprise when you file your return.
Coordinate Fringe Benefits
Now that you are the new Mr. and Mrs. “Whatever,” there are new opportunities for you to save on your tax return. You and your spouse should draw up a list of the tax-favored fringe benefits at each of your workplaces. If you can be covered by your wife's medical plan, for example, maybe you can trade your coverage for another benefit.
Inform the Social Security Administration of Your Name Change
Did you change your name when you got married? If you did, it's important to let the Social Security Administration know of the change. You can do this by filing the Social Security Administration form Application for a Social Security Card. If the name on your tax return does not match the name the Social Security Administration has for your Social Security Number, any tax refund will be delayed until the discrepancy is resolved. If you forgot, or ran out of time, to change your name with the Social Security Administration, you can file a joint return with your spouse using your maiden name (the one that matches your Social Security Number) and then file the form for next year's filing season.
Selling Your House
The amount of home-sale profit that can be tax-free doubles from $250,000 to $500,000 once you are married. This assumes that you own and live in the house for at least two of the five years before the sale. But what if your spouse sold his/her house before the wedding so he/she could move in with you? Assuming your spouse meets the two-out-of-five-year tests for the house he/she sold, the $250,000 limit applies just as if he/she were still single. What if he/she sold the house after the wedding? Then $250,000 of the profit on the sale of his/her home can be tax-free.
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