10 Ways Getting Married Affects Your Taxes – UPDATED
September 25, 2014 : Lindsey Buchholz - The Tax Institute
Editor’s Note: One of our most popular posts ever detailed 10 important tax changes that may affect you after getting married. We’ve updated most of those and included one brand new change that you need to know about before filing that 2014 tax return.
1. Filing status. Once you get married, the only filing statuses that can be used on your tax return are married filing jointly (MFJ) or married filing separately (MFS). 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.
2. Tax brackets. These 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.
Married couples filing a joint return get to claim two personal exemptions (one for each of you) on the tax return instead of the one exemption allowed when you filed as a single individual. Additionally, the standard deduction allowed on the tax return is highest for married couples filing a joint return. (See exemptions and deductions explained.) For 2014, single taxpayers are allowed a standard deduction of $6,200, while married couples filing a joint return are allowed a deduction of $12,400.
Additionally, a dependent exemption is allowed for each child claimed as a dependent on the tax return. This amount is generally $3,950 per child (for 2014).
4. Changing your W-4. Because of the additional exemption and higher standard deduction you are allowed to claim on a joint tax return, it may be wise to change your Form W-4 with your employer to reflect these changes. Claiming an additional allowance and/or changing withholding to the “married” rate on your Form W-4 means that less taxes are withheld from your pay.
5. Buying your first home or selling one. 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.
6. Itemizing vs. claiming the standard deduction. When you file your return each year, you have to determine if it is more beneficial for you to itemize as opposed to claiming the standard deduction. Once you are married and own a home, many people find that it is more advantageous to itemize their deductions — typically because deductions such as mortgage interest result in a higher total deductible amount than the standard deduction.
7. Gift taxes and estate planning. Spouses are allowed to 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.
8. 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 filing 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.
9. Marriage 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 bracket (10% and 15%) and the standard deduction for MFJ are exactly double that of single individuals.
10. Affordable Care Act premium tax credit. If either or both of you receive advance payments of the premium tax credit for health insurance purchased through a federal or state Marketplace, you should report your marriage (as well as any associated changes, such as a move to a different state, change in income, or change in family size) to the Marketplace. This will allow the Marketplace to adjust your advance credit payments if necessary.
Need assistance filing your first return as newlyweds? H&R Block has more than 10,000 offices across the U.S. Make an appointment today and let us help out!