How Getting Married Affects Your Taxes
Tax Considerations for Newly Married Couples
you’re getting married, taxes are probably the last thing you want to think about. However, it is still important to understand the tax consequences of marriage. This article explains some basic tax considerations for newlyweds.
Name and Address Changes
When you file an income tax return, the name(s) and Social Security number(s) on your form must match your records at the Social Security Administration (SSA). If you change your name when you get married, you must report it to the SSA. You can report the change by filing Form SS-5 (Application for a Social Security Card).
If your address changes, you must notify the IRS by filing Form 8822 (Change of Address). You will also want to inform the U.S. Postal Service of the change, which can be done by visiting your local Post Office. You can also use the USPS website (USPS.com) to request mail forwarding.
Withholding Tax Changes
When your marital status changes, you will have to provide your employer with a new Form W-4 (Employee’s Withholding Allowance Certificate). Keep in mind, if both you and your spouse are employed, your combined annual income may push you into a higher tax bracket. If you need help filling out Form W-4, you can use the IRS Withholding Calculator online tool to avoid having too little or too much Federal income tax withheld from your paychecks. For more information, please refer to IRS Publication 505 (Tax Withholding and Estimated Tax).
Changes in Filing Status
Your filing status is a determining factor when it comes to your tax liability, filing requirements, and eligibility for various tax deductions and tax credits. There are five different filing statuses: single, married filing jointly, married filing separately, head of household, and qualifying widow(er) with dependent child. If you find that more than one filing status applies to you, you can use whichever one offers you the most tax benefits.
For Federal tax purposes, if you are married at any point during a given year, you are considered ‘married’ for the entire tax year. So even if you get married on the last day of the year (e.g., December 31, 2018), you are considered married for tax year 2018.
In general, married couples have the option of filing a joint tax return or separate returns. An exception is if one spouse is a nonresident alien, in which case the couple must file separately. Aside from that, most couples find that their income tax liability is lower if they file jointly, as opposed to filing separately.
Married Filing Jointly
On a joint tax return, a married couple must report their combined income and deductions. Note that you can file a joint return even if one spouse has no income or deductions. Also keep in mind, the standard deduction may be higher for joint filers, and you may qualify for a variety of tax benefits that would not otherwise apply.
Joint filers must both use the same tax year on their return, but each spouse is allowed to use different accounting methods. Both spouses must sign a joint return — though you may sign for your spouse (with a note of explanation) if he/she is serving in a combat zone for the U.S. Armed Forces.
It is important to remember that filing jointly means you will both be held accountable for all the information reported on the tax return. Furthermore, you can be held jointly liable for all the taxes, interest, and penalties incurred on income earned by your spouse. (In a situation like that, you may want to consider filing for Innocent Spouse Relief. For more information about Innocent Spouse Relief, please refer to IRS Publication 971.)
If one spouse brings tax problems from prior years into a new marriage, these previous issues should not affect their new spouse. Consequently, pre-existing tax problems should not affect the decision about whether to file jointly or separately. The spouse who doesn’t have prior tax issues should look into requesting Injured Spouse Allocation. For more information about Injured Spouse Allocation, please refer to IRS Form 8379 and its Instructions.
Married Filing Separately
Sometimes it’s in your advantage to file separate tax returns instead. This may be true if you think that your spouse is not honestly reporting their income or deductions. It can also apply if your spouse is having too little Federal income tax withheld from their paychecks, or if he/she isn’t making proper quarterly estimated tax payments. In certain instances — for example, if one spouse has high medical expenses or other deductions limited by Adjusted Gross Income (AGI) — filing separately can result in owing less tax.
However, there are a number of special rules that come with the “married filing separately” status, which tend to result in higher taxes for most people. Separate filers are often excluded from tax breaks that joint filers are eligible for, such as the Earned Income Credit and deductions for education expenses. If a couple elects to file separately, only one parent may claim their child as a dependent — even if both parents are equally contributing to the child’s support. Also for separate filers, if one spouse itemizes their deductions, the other spouse cannot claim the standard deduction.
There are currently nine states with community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. If you live in one of these states and you choose to file separate returns, the community property laws of your state will govern how you calculate your income on your Federal income tax return. Note that you will have to determine your community income as well as your separate income. For more information, please refer to IRS Publication 555 (Community Property).
Same-Sex Couples and Domestic Partners
According to the IRS, “If you are legally married in a state or country that recognizes same-sex marriage, you generally must file as married on your federal tax return.” This is true even if the couple currently resides in a jurisdiction that does not recognize their marriage. (See IRS Revenue Ruling 2013-17 for more information.)
On the other hand, registered domestic partners are not considered married for Federal tax purposes. In most cases, they should file as “single” or, if they qualify, as “head of household.” Registered domestic partners in Nevada, Washington (state), and California should follow their state community property laws when it comes to reporting income.
Gift Tax Exclusions
If you have given or received a large gift, there may be tax consequences. According to the IRS, a gift is “Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return.” The gift tax is generally the responsibility of the person who gives a gift (i.e. the donor), and the amount of tax due is based on the value of their gift. Gift tax rates range from 18% to 40%. You do not have to pay tax on gifts that are below the $15,000 annual exclusion limit, which generally changes every year – that means you could give up to $15,000 to each of your children this year without having to pay any gift tax.
The only person you can give a gift to that is exempt from the gift tax is your spouse. Gifts to your spouse qualify for the marital deduction and are not subject to the gift tax. Additionally, spouses can each give up to $15,000 to the same recipient and still stay within the annual exclusion threshold. Together, a married couple can give $30,000 to each donee without incurring the gift tax. Note that most tax professionals recommend married couples to give money in the form of two separate checks, each signed by one of the spouses, to avoid any confusion.