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How Marriage Affects Your Taxes

How Marriage Affects Your Taxes

Marriage can affect taxes in several ways. While everyone's situation is different, certain marriage tax benefits help you pay less tax. In addition, they will have tax options as spouses that single filers do not have. Other tax changes after marriage relate to the documents you need to complete.

Whether you want to know how getting married financially affects your taxes or just want to know what steps or forms to consider, we've covered them in this article. While not all of the effects mean you'll get a better tax return if you get married this year, some tax benefits will help your finances throughout your life together.


Marriage tax benefits: some examples

When you get married, there are many things to consider when it comes to finances. You are probably wondering what good tax news there might be to go along with your wedding. "Do you pay less taxes if you are married? What are the tax benefits for couples?

What are the tax advantages of marriage? We will describe these advantages in this section.


Taxes on gifts and real estate planning

Spouses can exchange unlimited cash or other gifts, exempt from gift tax. This arrangement has important implications for estate planning, so be sure to review your estate plan when you get married.


Increase in the deduction for charitable donations

Giving money can mean a deduction, which helps reduce taxable income. For 2021 taxes, a new rule in the CARES Act allows a $300 deduction for cash donations to charities. However, those who are married and filing a joint return can double this amount and deduct $600.


IRA Beneficiaries Options

The inheritance rules for an IRA can be complicated and can sometimes mean paying taxes when you are named as the beneficiary. However, spouses have an unusual option, which may mean you can defer distributions for longer, and if you fall into a lower tax bracket at the time of the distribution, you pay less tax on the distribution. When you choose to designate your spouse as the beneficiary of the IRA, your spouse can treat the inherited IRA as their own.

  • If it's a traditional IRA, a spouse can delay receiving distributions longer than a non-spouse.

  • If you are a Roth IRA, your spouse will not have to take RMDs during their lifetime.


Tax changes after marriage: what to consider

The wedding has its own to-do list, even if you are planning a simple wedding. But what happens after you say "yes, I do"? As you start your new life and new roles together, keep tax changes after marriage in mind. 


Social Security Name Change

As your return is recorded with your SSN (Social Security Number), it is vital to ensure that the SSA (Social Security Administration) has been notified of any name changes that occur. The Social Security Administration must process the change in the system and send this information to the IRS before filing the return. You should wait to file your return until the name change process is complete to avoid any complications that may arise if the name on the return does not match the SSN registered with SSA.


Changes to the W-4 tax form after marriage

You may want to modify the W-4 form with your employer to reflect a change in marital status, as the entries on the form will be different from previous years.


Filing Status Options

After marriage, the only tax filing situations that can be used on the tax return are Married Filing Jointly or Married Filing Separately. The marital tax advantages for filing taxes together are as follows:

  • Child deductions and child care expenses can be claimed. The Child Tax Credit and the Other Dependent Credit are allowed on a married filing separately tax return. Credit for child care and dependents is generally not allowed on a married filing separately.

  • Student loan interest can be deducted. (Student loan interest is not allowed when dealing with married filing separately but is also limited by income, so if the combined income is too high, the student loan interest deduction may be limited or not allowed.)

  • The tax rate is generally lower.

  • You can claim education tax credits if you are a student.

  • If eligible, you can claim the EITC (earned income tax credit).

Your filing status is decided on December 31 of each year, so if you were not married for most part of the tax year, you do not have the single filing option if you are married on that date. In general, joint filing for couples provides the most advantageous tax outcome for most couples, as some deductions and credits are reduced or unavailable to couples filing separately.


Your marriage can change your tax brackets.

These tax brackets will determine the highest tax rate on your income. Tax rates are different for each filing state, so your earnings may no longer be taxed at the same tax rate as when you were single.

When you are married and file jointly, your income is combined, moving one or both to a higher tax bracket. Or, if one of you has a higher income, that spouse may be in a lower tax bracket. This could be a tax benefit for your marriage depending on your case.


Buying or selling your first home.

After marriage, your combined income may allow you to buy your first home, or you may choose to sell individual homes you owned before marriage. The interest you pay on the mortgage is deductible on the tax return as an itemized deduction when you own a home.

If you sell a house, the amount of gains that can be excluded from income is doubled from $250,000 to $500,000. Be careful, though: if only one of you owned the house before the marriage, the $500,000 exclusion only applies if you have both lived in the main house for at least two years.


Tax fine for married couples

There is a marriage penalty when two people filing together pay more tax than the number of their individual tax liabilities which is calculated as if they were filing as single taxpayers. One of the reasons for this is that income tax and married filing lump sums jointly are not always equal to twice the income tax and single lump sums.

Under current legislation, the marriage penalty is partially mitigated because the lower categories of income tax (10%, 12%, 22%, 24%, and 32%) and the standard deduction for married filing jointly are exactly double.


What other tax credits or benefits do couples receive?

Marriage tax changes can get complex, which is why many people seek the help of a tax professional to find marriage tax credits and deductions they might otherwise miss.


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