Guest blogger: Lindsey Buchholz, a member of H&R Block’s Tax Institute. H&R Block is the world's leading tax service provider and is home to the best tax professionals in the industry, who are available to do whatever it takes to meet your needs—whether you file in the office or do your own taxes. For more financial advice and tips, visit their blog, Block Talk.
Filing tax returns was probably one thing you never gave much thought to when you got married. But, guess what: marriage can make taxes more complicated. Instead of making decisions just for yourself, you now have to consider your spouse’s income and potential deductions and credits too, so you can make smart financial decisions that won’t have you overpaying taxes. Here, some facts to keep in mind.
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Pick any filing status—as long as it’s married. When you get married, you are no longer able to file as a single individual. Instead, you will file either as married filing jointly or married filing separately. The IRS determines your filing status as of the last day of the year. So even if you got married at 11:59 pm on December 31st, for tax purposes you are married for the whole year.
Filing Jointly v. Filing Separately
The decision to file jointly or separately from your spouse is a decision that every couple must make. In some cases, couples choose to keep their financial lives separate and file separate returns regardless of the impact to the bottom line taxable income. In other cases, it makes better financial sense to file a joint return.
1. Filing jointly: Many married couples choose to file a joint tax return because it often results in the lowest tax liability. When you file jointly, you will file one return that includes all tax information for both of you.
A benefit to filing jointly is that the tax rates and brackets are more favorable to married individuals. Thus, you can earn more income as a couple and remain in a lower tax bracket than you could as a single individual. Generally, the married filing jointly tax brackets are much larger than they are for a single individual, meaning that as a couple you can earn much more than you did as a single individual and have the same income tax rate.
Additionally, all tax benefits are available to married individuals that choose to file jointly, which is not the case when couples file separately. So, if you are claiming an education credit or child tax benefits, you may be unable to claim these benefits if you file separately.
2. Filing separately: When you file a separate return from your spouse, you each will file a return reporting either your own or one half of all tax information depending on the property laws for your state. For most couples, filing separately will result in a higher tax liability than filing a joint return. But, there are some times when it may be a good idea to file a separate return.
When you file separately from your spouse, the law takes away the ability to claim some favorable tax benefits, such as education credits and the earned income credit. However, that doesn’t necessarily mean that you will be at a disadvantage. There are other tax benefits that are more easily attainable when your income is lower. For example, the deduction for medical expenses only allows you to deduct the amount of your expenses that exceed 7.5% of your adjusted gross income. If one spouse has a lot of medical expenses but very low income, they would have a much easier time meeting the 7.5% limitation and therefore be able to deduct more medical expenses than may be possible on a joint return.
A drawback to filing a joint return is that both spouses are jointly and severally liable for any information contained on the joint return. This means that you could be held solely responsible for a joint tax debt. This isn’t true in all cases, but if your spouse failed to report income or took an aggressive tax position on a return, you could personally be held accountable for your spouse’s tax liability. In addition, if your spouse owes back child support or has defaulted on student loans, the entire joint refund could be applied to those obligations. Filing a separate return can eliminate your responsibility for your spouse’s financial missteps.
Confused? Don’t worry, your tax professional can help. If you are claiming tax benefits that are subject to income limitations, have your tax professional run the numbers through both a joint return and a separate return to determine which will yield the more favorable result. Additionally, your tax professional can ask questions to help you determine if the IRS has likely placed any holds on your or your spouse’s account for things like past due child support or defaulted student loan obligations so you can make an informed decision on how to file your return.
Changing Your Withholding
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When you get back to work after your honeymoon, don’t forget to check your withholding allowances on your Form W-4. It is used by employers to determine the amount of income taxes to be withheld from employees’ paychecks. When you get married, you generally can have lower taxes withheld from your paycheck because you now have more favorable tax brackets than when you were a single individual. In some instances, married couples filing jointly can even earn twice as much money as a single individual and remain in the same tax bracket. However, you need to consult your spouse to ensure that you both don’t go overboard on changing your withholdings.
The amount of taxes withheld from each paycheck is determined by the number of allowances on Form W-4. The more allowances you have, the less tax is withheld. Based on the information you provide, your employer uses Form w-4 to determine the amount of income tax withholding. However, keep in mind that your employer cannot account for the tax liability that results once your income is combined with your spouse. Thus, you have to be careful to ensure that between the two of you, the proper amount of tax is withheld throughout the year. If enough tax is not withheld during the year to cover either 90% of your current year’s liability or 100% of your prior year’s liability, you may owe a penalty when you file your return.
Parents end up having the trickiest time ensuring the proper amount of tax occurs throughout the year. On Form W-4, you are allowed to add additional allowances for any dependents you claim on your return, most commonly children. If both you and your spouse claim an additional allowance for the same child, that child is effectively being counted twice, which could result in too little withholding throughout the year. The more dependents you have, the more potential for trouble. So, be sure to consult with your spouse before completing Form W-4.
Tax Benefits for Married Couples
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Some of the tax benefits for married couples are better tax brackets and increased standard deductions. Under current law, the tax lower tax brackets and standard deduction available to married couples are double the amounts for singles.
Some retirement plan rules are also more favorable to married couples. For example, IRAs have more favorable rules for married couples filing joint returns. To contribute to an IRA you must have taxable income. The law allows the spouse with earned income to make an IRA contribution to the IRA of a spouse with no earned income provided a joint tax return is filed. Additionally, spouses can inherit IRAs from one another and choose to treat the IRA as their own which provides more payout options.
Learning to navigate the tax rules for married couples can be confusing, but don’t worry, there’s help. If you have questions about the differences between tax rules for single and married filers, ask your tax professional. They can take a look at your prior years returns as single filers and help you determine exactly how being married will affect you as a couple. The good news is that generally it’s for the better.
— Lindsey Buchholz