Getting married brings a lot of change for many people. Moving, changing names, beneficiaries, emergency contacts, insurance, bank accounts, and the list goes on. Your yearly tax return is one of those items on that list.
The very first thing that is the most important to state, is that your marital status is determined on Dec 31 for the entire year. If you are married November 11th, you are married all year long. If you are divorced on October 5th, you are single for the entire tax year. For federal income tax purposes, that is how your income and tax is to be reported. Please do not have the cartoon “steam from your ears” trying to figure out how long you were single and how long you were married and how that translates to the tax return. The only exception is the very sad circumstance in which a spouse passes away during the year. If your spouse was living on Jan 1 at 12:01am and passed away any time after – you would still file a married filing joint (or married filing separate if you choose) for that tax year.
Once the December 31 date has determined your married or not married status you get to make a choice. Your choices are married filing jointly or married filing separately.
Married filing jointly is advantageous to many, and the default for most – often because it only requires filing one tax return, and less paperwork is awesome. The tax does change, but if you have read other posts from me or my associates, you will find a common theme – ‘it depends’. The tax could be the same as you have had in the past, be better, or go up depending on you and your spouse’s circumstances.
The times where it generally gets better is when one spouse works and one does not. When two people get married with one not working and one working, the working spouse will notice the total tax burden of the same amount of income is reduced.
When both spouses work and make about the same income, and the total is roughly $200,000.00 or less, it is often very similar to when they were both filing their own single returns prior to marriage.
There is no official term, but some talk of a ‘marriage penalty’, and that will apply to those with more than $400,000.00 of taxable income. Since the average income in America is just a touch over $60,000.00 – the volume of people worrying about a marriage penalty is low, and we won’t be focusing on that here.
This does not cover all the possibilities, because there are many, but I hope this helps to illustrate the many ‘it depends’ circumstances there could be. There is no simple, this is how things change for being married – it will vary family to family.
Things that do change across the board other than tax rates are:
- Filing one tax return instead of 2
- Claiming all of your deductions together
- Increased income ceilings before credits are disallowed
Married filing separately is the other option you have. Married filing separately can have very unique implications as each state dictates what is considered one spouses income or deduction vs the other. In a community property state like Texas all income and deductions are simply split in half and reported on two tax returns that are essentially identical, per the law. The only ‘separate’ income would be something like a rent home one spouse had prior to marriage, or things listed on a prenuptial agreement.
In addition to having to worry income and deductions, the tax returns have to reference one another and match in a certain way. The separate spouse is listed on the front of the tax return (1040) with their social. You must both itemize, or must both take the standard deduction. There is no mix and match option. Often this causes one person to lose out, in either scenario.
Lastly there are a some of credits that you are purely disqualified from claiming if you file married filing separately. The two big ones are college credits, and the earned income credit. The max earnings you can have for IRA contributions is also reduced drastically, all the way down to $10,000.
Why then with all the bad, does anyone file married filing separately?
Well.. everyone’s facts and circumstances are unique. Peoples lives are unique and blending two lives sometimes carries baggage from earlier in life. If you owe debts to the federal government, like IRS – the IRS will take any balance due from a refund with your social security attached to it. Meaning if one spouse has back taxes due, and upon filing a married filing joint tax return the family would get a refund, the IRS will take the entire refund for one spouses back debt. There are ways to claim injured spouse and still get your portion of the refund, but it isn’t simple and isn’t ever the number you think it should be.
Some people live full very happy lives and this is MY money and that is YOUR money – married filing separate is for you. It will likely be a worse tax result… but I would much rather have someone pay a little extra tax and be happy with their spouse, than spawn an epic war saga to be written about by poets and musicians over how to split the refund or balance to the IRS -every-single-year. I am tax preparer man – savior of marriage financial disputes *plants superhero flag. (kidding).
Marriage doesn’t come around too many times in people’s lives, albeit for some it happens more than others. It could be an easy conversation or an involved conversation but having a tax consultation meeting with a professional who specializes in individual income tax preparation would be a great idea. It would serve to calm your concerns and confirm it will not be a problem, or possibly identify what needs to be done so come time for your first married tax return, you are ready.
Charles Steinmetz
Senior Tax Professional
