Updated: Sep 5
Updated post: 9/5/23; Original post: 3/16/23
Disclaimer: Consult a tax professional for questions specific to your circumstances. This post is for education purposes only.
Marriage can have several effects on taxes for married folks, depending on various factors such as income levels, filing status, deductions, and credits. Here are a few ways that marriage can affect taxes:
Filing status: When you marry, you can file your taxes jointly with your spouse or separately. Married filing jointly typically results in a lower tax bill, as you can take advantage of more tax deductions and credits. However, in some cases, filing separately can be more beneficial, particularly if one spouse has a significant amount of deductions or credits subject to income limits.
Tax brackets: When you file jointly, your income is combined, potentially pushing you into a higher tax bracket. However, the income ranges for each tax bracket are typically wider for married couples filing jointly than for individuals, which can mitigate this effect.
Deductions and credits: Married couples filing jointly are generally eligible for more deductions and credits than individuals or couples filing separately. For example, the standard deduction is higher for married couples filing jointly than for individuals, and many tax credits (such as the Earned Income Tax Credit) have higher income limits for married couples.
Marriage penalty: In some cases, the combined income of married couples can result in a "marriage penalty," where they pay more taxes than they would if they were filing as individuals. This can occur when the tax brackets for married couples are not adjusted to account for the fact that they have two incomes.
Overall, the effect of marriage on taxes will depend on the specific circumstances of each couple, including their income levels, deductions, and credits. It's essential to consult with a tax professional to determine the most advantageous filing status and ensure that you capitalize of all available deductions and credits.
Should we file our tax returns as married filing jointly or married filing separately?
In most cases, folks will file tax returns in whatever way will reduce their tax liability. For context, over 95% of married tax filers file jointly. There are, however, a few reasons why couples might choose to file their tax returns as "married filing separately" instead of "married filing jointly."
One spouse has a lot of deductions or expenses
If one spouse has a lot of deductions or expenses that can only be claimed if their income is below a certain threshold, they might choose to file separately to keep their income low.
One spouse has a lot of income
If one spouse has a significantly higher income than the other, filing separately could result in a lower tax bill overall. This is because some tax deductions and credits have income limits, and filing jointly could push the higher-earning spouse into a higher tax bracket.
Separation or divorce
If a couple is separated or in the process of getting a divorce, they may choose to file separately to keep their finances separate.
Student loan payments
If one or both spouses have student loans and are enrolled in an income-driven repayment plan, filing separately could lower their monthly payments.
If one spouse has a significant legal liability, such as unpaid taxes or overdue child support payments, filing separately could protect the other spouse's assets from being seized by the government or other creditors.
You can amend your return to married filing jointly for three years back and capture all available credits. However, you cannot amend a married filing jointly return into married filing separately after the filing deadline.
For more details, listen to the WSJ Podcast Episode: Why some married couples file taxes separately
How can we get a marriage tax break instead of a marriage tax penalty?
The United States tax code includes provisions that can result in either a "marriage tax break" or a "marriage tax penalty," depending on a couple's financial situation. A marriage tax break means that a couple pays less in taxes than they would if they were not married, while a marriage tax penalty means they pay more.
To avoid a marriage tax penalty and potentially benefit from a marriage tax break, here are some steps couples can take:
Choose the right filing status
Couples should consider whether they should file jointly or separately, depending on their financial situation. Filing jointly can often result in a lower tax bill overall, but in some cases, filing separately can be more advantageous.
Maximize deductions and credits
Couples should take advantage of all available deductions and credits. For example, if one spouse has significant medical expenses, it may be beneficial to itemize deductions instead of taking the standard deduction.
Couples should adjust their withholding, so they are not overpaying or underpaying throughout the year. Overpaying can result in a smaller refund while underpaying can result in penalties and interest charges.
Consider retirement savings
Contributions to certain retirement accounts, such as traditional IRAs and 401(k)s, can lower a couple's taxable income and potentially reduce their tax bill.
Plan for income differences
If one spouse earns significantly more than the other, shifting income to the lower-earning spouse may be beneficial, either through retirement account contributions or other means.
It's important to note that every couple's financial situation is unique, and what works for one couple may not work for another. Consulting with a tax professional can help couples determine the best strategies to minimize their tax bill and potentially benefit from a marriage tax break.
The Urban Institute and Brookings Institute Tax Policy Center Marriage Calculator empower users to create specific situations to see how much federal income tax two people might pay if they marry. It compares the taxes a married couple would pay to file a joint return with what they would pay if they were unmarried and each filed as single or head of household.
What is my marital tax filing status for this tax year?
Your marital status determines your tax filing marital status as of the last day of the tax year, which is December 31 for most taxpayers. There are five filing statuses recognized by the Internal Revenue Service (IRS):
Single: You can file as single if you are unmarried or legally separated from your spouse.
Married filing jointly: If you are married and want to file a joint tax return with your spouse, you can file as married filing jointly.
Married filing separately: If you are married but don't want to file a joint tax return with your spouse, you can file as married filing separately.
Head of household: If you are unmarried, paid more than half the cost of maintaining a home for yourself and a qualifying dependent, and meet certain other criteria, you may qualify for head of household status.
Qualifying widow(er) with dependent child: If your spouse died in the past two years, you have a dependent child, and you meet certain other criteria, you may be able to file as a qualifying widow(er) with a dependent child for two years following your spouse's death.
It's important to note that your tax filing status can significantly impact your tax liability, so it's important to choose the correct status. If you are unsure which status to use, you should consult a tax professional or use tax software to help you determine the best filing status for your situation.
What should I do if we owe additional taxes after filing and don't have enough money to pay?
Start by acknowledging feelings such as frustration, shame, and blame that come with this problem.
Friends of ours changed their W4s when changing jobs last year. One of them made a mistake that led to a surprise additional $8,000 owed. Naturally, the spouse who made a mistake felt shame, and the other spouse blamed them. Both are common and expected feelings couples need to work through, and it starts with the rule of thumb when working through these issues with your spouse: No shame. No blame.
If you owe additional taxes after filing your tax return and don't have enough money to pay, there are several steps you can take:
File your return and pay as much as you can
It's important to file your tax return on time, even if you can't pay the full amount you owe. By filing on time, you can avoid late filing penalties, which can be substantial. You should also pay as much as possible to reduce the interest and penalties that will accrue.
Contact the IRS
If you can't pay the full amount you owe, you can contact the IRS to request a payment plan or an extension of time to pay. The IRS may be willing to work with you to set up an installment agreement that allows you to pay your tax debt over time.
Explore tax relief options
In some cases, you may be eligible for tax relief programs such as an offer in compromise, which allows you to settle your tax debt for less than the full amount owed. You may also be eligible for penalty relief or a hardship extension if you are experiencing financial difficulties.
It's important to take action as soon as possible if you can't pay your tax debt. Ignoring the debt can result in additional penalties and interest charges. The IRS may take enforcement action, such as garnishing your wages or seizing your assets to collect the debt.
How can I reduce our chances of owing additional taxes after filing?
If you got a huge tax bill when you filed your tax return this year and don't want another, you could use Form W-4 to increase your withholding. Here are the steps to do so when revising your W-4:
Reduce the number of dependents.
Add an extra amount to withhold on line 4(c).
Consider using the IRS Tax Withholding Calculator to determine how you and your spouse should complete Form W-4.
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