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Marriage and Taxes

Couple Filing Taxes


So you’ve tied the knot, congratulations! Once you have settled down a bit, it is time for you and your spouse to visit your financial planner to discuss impact of marriage on taxes and your financial future. There are some specific tax considerations for married filers. Some taxpayers might find they are paying slightly bigger tax bills but marriage also offers many tax advantages. Here is a little secret: Many married couples actually get a marriage bonus, paying less income tax than if they stayed single. At issue is the graduated nature of the tax system, which applies higher tax rates to higher levels of income. When you pile one person’s income on top of another’s on a joint tax return, it can sometimes push some of that income into a higher tax bracket.

Congress has taken steps to reduce the impact of the marriage penalty. Tax law changes since 2001 (and in effect through 2010) have eased the possible penalty. For 2010, the ceilings for the top of the 10 percent and 15 percent brackets on joint returns are precisely twice as high as the ceilings on single returns (that was not always the case). As incomes rise into higher brackets, though, the tax ceilings on a joint return aren’t quite double the ceilings on a single return. That can cause a marriage penalty, but it doesn’t guarantee one.

Filing status

Your wedding date is as important to the IRS as it is to you. For filing purposes, you are married for the full tax year as long as you exchange vows by Dec. 31 of the filing year. After you’re married, you can file your returns as married filing jointly or as married filing separately. Most couples prefer the joint option, but depending upon your particular financial and tax circumstances, separate filings could be warranted.

Joint filing usually is a good idea if you both work and one makes considerably more than the other. Combining incomes could bring the higher earnings into a lower tax bracket. Some tax credits are only available to a married couple when they file a joint return which also helps. And logistically, it’s easier to deal with just one return. When couples file jointly, each partner accepts equal responsibility for any tax due or penalties that might be assessed if problems arise with the return. Separate returns might be advisable if one spouse has large medical bills and can meet the deduction threshold by considering only his or her income. Other itemized deduction thresholds (miscellaneous deductions or casualty losses) also could be easier for just one partner to meet. Separate filing also is recommended when a spouse has concerns about tax claims the other wants to make.

Point to be noted though, that if one spouse itemizes on his or her return, the other spouse also must itemize. That could result into a cost increase for the other suppose who has no or few itemized expenses and would be better off claiming the standard deduction.

Home sale tax advantage

A home is a major acquisition, regardless of marital status. On the positive side when a married couple sells their residence, they get a tax break that is twice as large as that available to single home sellers. By living in the property for at least two of the five years before selling, a couple can exclude from tax up to $500,000 in sale profits versus $250,000 for single sellers. The larger home sale exclusion remains even after a spouse passes away. As long as the surviving spouse remains unmarried and sells couple’s home within two years of the day his or her spouse died, the widow or widower can claim the $500,000 joint gain exclusion.

Estate tax advantages

Estate taxes are a concern for everyone, but the good news is that the Internal Revenue Code exempts millions of dollars of assets from this tax. The better news for married couples is that they don’t have to worry about limits. You can leave an estate worth any amount to your spouse and, thanks to what is known as the estate tax marital deduction; there are no federal estate taxes to pay.

Estate assets left to a spouse aren’t tax-free. Rather, potential taxes are deferred. But the estate tax marital deduction gives the surviving spouse time to make other tax moves to ease taxes on the eventual distribution of the assets to heirs.

Surviving spouse filing status

After the loss of a spouse, you’ll need to sort through filing status issues. If you remain unmarried in the year that your husband or wife died, you can file your tax return jointly, taking into account your deceased spouse’s income. This allows you to take advantage of the larger standard deduction and potential credit claims. If you do remarry within that tax year, in addition to filing your joint (or married filing separately) return with your new spouse, be sure to file your deceased spouse’s tax return. If you have dependent children and remain unmarried, the next tax year you should file as a qualifying widow or widower. You can use this filing status for the two tax years following the year your spouse passed away. It gives you the benefit of joint filing tax tables and a larger standard deduction.

Contact the Social Security Administration

Finally, if you changed your name when you got married, it’s important to let the Social Security Administration know by filing a Form SS-5. If the name on your tax return does not match the name Social Security has for your Social Security number, any tax refund you have coming will be delayed until the discrepancy is resolved. If you’re up against the tax filing deadline and don’t have time to change your name with Social Security, you can file a joint return with your husband using your maiden name (the one that matches your Social Security number), and then straighten things out in time for next year’s filing season.
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