Something must definitely be in the water. Wow, in the last year, more friends and clients have gotten married than I have ever witnessed. What probably didn’t come up with any of these couples before their big day was how would the marriage change their respective tax situations.
For years, many provisions in the tax code treated married couples more punitive than single taxpayers especially with regards to tax brackets and standard deductions. The amounts for these items were larger for married couples than for singles, but were not equal to what two singles would have gotten under the same circumstances. The old tax code was written with the 1950s attitude that wives didn’t work. But today, as we know, most wives are working, and when the second person was working this created the “marriage penalty.”
The “marriage penalty” has largely been alleviated thanks to the 2001 Tax Act, which doubled the amount of the standard deduction for married couples filing jointly, and doubled the tax brackets for the two lowest tax rates for them as well.
There are, however, many other sections of the tax code that still penalizes double income married couples. And it’s especially noticeable if one or both of the newlyweds were formerly filing as head of household.
For example, a woman making $60K per year with two children marrying a man making $85K per year with no kids would see her child tax credit reduced from $2,000 to about $250 per year.
Two single newlyweds who each make $50K per year will find that their contributions to their respective Traditional IRAs, which had been deductible as single taxpayers become nondeductible once they are married. There are other credits and deductions which similarly are affected by marriage status.
One of the most often asked questions from newlyweds regarding taxes relates to changing their tax withholdings by increasing the exemptions claimed. I generally discourage increasing the exemptions claimed to lower monthly tax withholdings until after the first year in order to make sure there are no adverse tax consequences which may not be readily apparent.
Another big question I get involves the decision to file separate vs. joint returns. The quick and dirty answer is unless (1) your spouse is running for public office and you want to hide your information (ala John McCain) or (2) your spouse has extremely high medical bills, joint filing is best.
Obviously, love triumphs over taxes in all of these situations (well maybe not for me, I’m all about the benjamins), however, your new potential tax situation should be considered along with your fiancé’s credit history, debt situation, etc. You should also make yourself aware of the rules for injured spouse and innocent spouse relief.
Jermaine A. Southern a.k.a. "The Tax Guy" is a Certified Public Accountant (CPA) living in Phoenix, Arizona. He received his B.A. in Accounting from Morehouse College, and graduated from Arizona State University's W.P. Carey School of Business with a Masters of Taxation. He has been in public practice for more than nine years along the way working at both international (Deloitte & Touche LLP) and regional (Clifton Gunderson LLP) firms. He is now principal of his own private practice. The Tax Guy's articles do not necessarily reflect the views of PhxSoul.com. Please visit southerncpafirm.com to reach Jermaine for additional questions with regard to this article or other tax assistance.
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