Tax tips for newlyweds: 9 ways getting married changes your taxes
Honeymooners have myriad reasons to bask in the glow of domestic bliss — some more romantic than others. As anyone who's tied the knot knows, not only are you embarking on a lifetime together, now you can finally stop saving for your wedding. Hooray!
But there's one part of married life that many couples overlook:
Taxes.
That’s right, Uncle Sam is that grumpy relative who forgot to give you a wedding gift, but definitely expects one from you — every year.
Here are a few ways getting hitched changes your tax situation, along with tips from tax professionals to help you ahead of the April 18 filing deadline:
You may need to update your key details
All of your tax paperwork — including changes to your name or address — must be up to date, as Quicken points out. Failure to provide matching information can result in the IRS giving your taxes a huge thumbs down or deciding to audit you. (Yikes!)
In addition to changing your name and address places like on your W-2 and 1099, you may need to contact the Social Security Administration to legally change your name then report it to the IRS.
Couples who moved in together and changed locations should also file a change of address form with the U.S. Postal Service to make sure all tax documents go to the right mailbox.
Your tax withholdings might shift
Remember all that new hire paperwork you had to fill out when you started your job? Yeah, You'll need to do that all over again.
Married couples can choose to elect "Married" or "Married, but withhold at higher single rate" on their W-4 forms — along with the traditional allowances and exemptions found on the form.
"The withholding rate for those who are married is lower than for those who are single," said Venar Ayar, Esq., founding tax attorney at Ayar Law. "Some married people find that they do not have enough tax withheld at the married rate."
The IRS points out that a couple's tax liability should match their elected withholdings — as failure to do so can land you in the hot seat with the government.
"If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty. If too much tax is withheld, you will lose the use of that money until you get your refund," the IRS notes.
Check out the IRS withholding calculator to figure out how much you should withhold.
You could owe taxes for being "married" while you were still single.
That's right, married peeps. December 31 determines your marital status for the entire year. As LearnVest notes, "one of the most surprising things that couples learn when filing taxes is that whether you got hitched on January 1 or December 31, the IRS counts you as 'married' for that entire calendar year."
Shocking, but true.
This means couples who exchanged vows right before the New Year will be treated as married taxpayers all year long, no matter how fabulous their December wedding was.
You'll need to decide if you'll file jointly...
Sorry, but the days of filing "single" are over. You're married, which means you and your new spouse are done selecting china patterns and must choose your marriage filing status — that is, whether or not you want to file your taxes separately or together (jointly).
Lots of married couples file jointly simply because it means they can file a single return instead of two separate ones, Bankrate notes.
We'll take simplicity for $200, Alec.
Joint filers also have access to higher standard deductions that enable married couples to deduct — or subtract — more from their tax bill. "Joint filers mostly receive higher income thresholds for certain taxes and deductions — this means they can earn a larger amount of income and potentially qualify for certain tax breaks," Intuit explains on its TurboTax website.
Married couples who file separately are sometimes ineligible for tax deductions and credits — including deductions on tuition and student loan interest. So if you want to join forces and get better tax benefits to lower your tax liability, filing your taxes jointly might be the way to go.
... but filing separately might be better
Sure, you're all about togetherness now that you've gotten hitched. But there are times when filing separately makes more sense, Lisa Greene-Lewis, a CPA and tax expert at TurboTax, told Mic.
One of the biggest disadvantages to joint filing is that both spouses are responsible for each other's tax liability. This means the IRS can come after your tax refund to pay off any tax liabilities your spouse might have. So if you're married to someone with a small business, for example, and don't want to be on the hook for their business liabilities, you might want to file separately, Greene-Lewis notes.
Filing separately can also be a powerful play for married couples who have significant deductions — like high medical expenses — that they need to report as itemized deductions. That's because the expenses may be high enough to exceed the deduction threshold for a single income, but too low to be deducted from the couple's higher, combined income.
Need more help? Check out the filing status tax tips on the IRS website.
You could face the "marriage penalty"
You're probably asking yourself right about now why the government can't just leave you and your spouse alone. (We get it.)
Sadly, there are many tax implications that come with "'till death do us part."
When couples tie the knot, they're merging more than their housewares and bed linens. There's a good chance you'll enter a new tax bracket thanks to that combined income — assuming you file jointly — that could expose you to a marriage penalty.
Say what?
According to the Tax Policy Center at the Urban Institute & Brookings Institution, "a couple incurs a marriage penalty if the two pay more income tax filing jointly as a married couple than they would pay if they were single and filed as individuals."
"Getting married could cause your total tax liability to be less, very similar, or greater than what you pay individually — sometimes called a marriage penalty or marriage bonus," Roger Ma, a certified financial planner and founder of Life Laid Out, explained to Mic.
Simply put: Married couples who decide to file together — thus combining their incomes — run the risk of moving up a tax bracket, and thus exposing themselves to a potential penalty as tax brackets for married couples filing jointly aren't necessarily double the tax rate of single filers.
Or you might get the "marriage bonus"
On the flip side, married couples might be able to enjoy a marriage bonus, or lower the amount of taxes they owe, if there's a sizable difference in a married couple's income, LearnVest notes.
For example, if a spouse earns $41,000 and the other $32,000, their tax rate as a married couple filing jointly, according to TaxFoundation.org, would be 15% — whereas the spouse with the higher income ($41,000) would fall into the 25% tax bracket if he or she wasn't married and was filing single.
Get it?
You can use the Urban Institute & Brookings Institution's Tax Policy Center's tax calculator to find out if you can expect a marriage penalty or bonus.Although it appears that most millennials aren't buying homes, there's a very good chance many will in the future as NerdWallet reveals millennials yearn for homeownership instead of renting.
You can use the Urban Institute & Brookings Institution's Tax Policy Center's tax calculator to find out if you can expect a marriage penalty or bonus.Although it appears that most millennials aren't buying homes, there's a very good chance many will in the future as NerdWallet reveals millennials yearn for homeownership instead of renting.
The unlimited marital deduction is now real
We hate to be the one to break it to ya, but an unlimited marital deduction does not mean you can shop until you drop while Uncle Sam picks up the tab.
(If only, right?)
"One of the most powerful tax benefits available to married couples is the unlimited marital deduction allowing assets to be transferred to a surviving spouse tax free," Greene-Lewis points out. "Don’t ignore this."
Although many millennials are up to the eyeballs in student loan debt and are barely saving up enough for retirement, it certainly doesn't hurt to keep the unlimited marital deduction in the back of your mind for estate planning purposes in years to come.
Home sellers can get a sweet tax break
Although millennials are buying homes at a lower rate than their parents, chances are you'll buy one eventually, and you don't want to miss out on this great tax perk if you do.
Qualifying married couples who file jointly and want to sell the primary residence they've lived in for two or more years might be able to realize a joint-filer gain exclusion.
This allows eligible couples to exclude capital gains — for the purposes of calculating tax on profitable sales of investments — of up to $500,000. (Single individuals can qualify for up to $250,000.)
This could be a game changer for married couples — including spouses wanting to sell their former primary residences (and, you know, move in together) — that would potentially be able to qualify for two separate $250,000 exclusions.
Yeah, buddy!
Got all of this? It's a lot, we know.
Newlyweds should head over to the IRS website for "just married" filing tips to help sort out your may options.
You might also consider hiring a financial professional like a certified public accountant to help you make sense of it all.
Sign up for The Payoff — your weekly crash course on how to live your best financial life. Additionally, for all your burning money questions, check out Mic’s credit, savings, career, investing and health care hubs for more information — that pays off.
