How does marriage affect taxes?

 

Marriage can affect taxes in many ways.  While everyone’s situation is different, there are some tax benefits of marriage that help you pay less in taxes. Plus, you’ll have tax options as spouses that single filers don’t. Other tax changes after marriage are related to paperwork you should complete.

married couple expat

Whether you’re looking to find out how marriage affects your taxes from a financial perspective, or you just need to know what steps or forms need to be considered, we’ve got you covered in this post. While not all the impacts mean you get a better tax return outcome if you’re married this year, there are some tax benefits that will help your finances over your lifetime together. 

Tax benefits of marriage: A few examples

When you’re tying the knot, you have a lot to consider where finances are concerned. For your taxes, you’re probably wondering what happy news there might be to go along with your nuptials. “Do you pay less tax if married? What tax breaks are there for married couples?”

So, what are the tax benefits of marriage? We’ll outline those advantages in this section.   

Gift taxes and estate planning

Spouses can give unlimited gifts of cash or other property to one another free of gift taxes. This provision has important implications for estate planning purposes, so be sure to revisit your estate plan once you get married.

Larger deduction for charitable contributions

Donating cash can mean getting a deduction, helping you lower your taxable income. For your 2021 taxes, a new rule related to the CARES Act allows an above-the-line deduction of $300 for gifts of cash to charity. However, those who are married filing jointly can double that amount and deduct $600.

IRA beneficiary options

Rules for inheriting an IRA can get complicated and can sometimes mean paying taxes when you’re named as someone’s beneficiary. However, spouses have a special option, which may ultimately mean you can defer the distributions longer and if you are in a lower income tax bracket at the time of distribution, paying less tax on the distribution. When you name your spouse as the beneficiary of your IRA, your spouse can treat the inherited IRA as their own.

  • If it’s a Traditional IRA, your spouse may be able to put off taking distributions longer than a non-spouse.
  • If it’s a Roth IRA, your spouse won’t need to make RMDs during their lifetime.

Find out more about IRA withdrawal rules.

Tax changes after marriage: What to be aware of

Getting married comes with its own to-do list, even if you’re planning just a simple wedding. But what happens after you say “I do”? As you adjust to your new life and new roles together, don’t forget about the tax changes after marriage. Read on to see what you’ll need to consider.

 Name change with Social Security

Because your return is filed under your Social Security number (SSN), it is important to ensure that the Social Security Administration (SSA) has been notified of any name changes that take place. The SSA must process the change in the system and relay that information to the IRS before you file your return. You should wait to file your return until after the name change process has been completed to avoid any complications that could arise if the name on the return does not match the SSN on file with the SSA.

 Changes to your W-4 tax form after marriage

It may be wise to change your Form W-4 with your employer to reflect a change in marital status, as your form entries will be different than previous years.

 Filing status options

Once you get married, the only tax filing statuses that can be used on your tax return are Married Filing Jointly (MFJ) or Married Filing Separately (MFS). Marriage tax benefits for filing taxes together are the following:

  • The tax rate is often lower.
  • You may be able to claim education tax credits if you were a student.
  • You may be able to deduct student loan interest. (Student loan interest is not allowed when MFS, but it’s also limited by income, so if combined income is too high, the student loan interest deduction can be limited or disallowed.)
  • You can claim deductions for children and childcare expenses. Child tax credit and credit for other dependents are both permitted on an MFS tax return. Child and dependent care credit is generally not permitted on an MFS return.
  • You can file for the Earned Income Tax Credit (if you qualify).

Your filing status is determined on December 31 of each year, so even if you were not married for most of the tax year, you do not have the option of filing as single if you are married on that date. Generally, married filing jointly provides the most beneficial tax outcome for most couples because some deductions and credits are reduced or not available to married couples filing separate returns.

Marriage can change your tax brackets

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

When you are married and file a joint return, your income is combined — which, in turn, may bump one or both of you into a higher tax bracket. Or, one of you is a higher earner, that spouse may find themselves in a lower tax bracket. Depending on your situation, this could be a tax benefit of being married.

Buying or selling your first home

Once you get married, your combined incomes may allow you to purchase your first home or you may choose to sell individual homes owned before the marriage. When you own a home, interest you pay on your mortgage is deductible on your tax return as an itemized deduction.

If you are selling a home, the amount of gain that can be excluded from income doubles from $250,000 to $500,000. Be cautious, though: if only one of you owned the home before the marriage, the $500,000 exclusion applies only if you both lived in the home as your main home for at least two years.

Marriage tax penalty 

A marriage penalty exists when two individuals filing a joint return pay more tax than the sum of their individual tax liabilities calculated as if they were filing as single taxpayers. One reason this occurs is because the MFJ income tax brackets and standard deduction are not always equal to twice the single income tax bracket and standard deduction.

Under current law, the marriage penalty is partly alleviated because the lower income tax brackets (10%, 12%, 22%, 24%, and 32%) and the standard deduction for MFJ are exactly double that of single individuals.

What other tax credits or benefits do married couples get?

Marital tax changes can get complex – which is why many people enlist the help of a tax pro to find post-marriage tax credits and deductions they could otherwise be missing.

For additional questions and guidance, locate your nearest H&R Block tax professional.

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