Marriage changes a lot of things and taxes are on that list. Newlyweds should know how saying “I do” can affect their tax situation.
Here’s a checklist of items for newly married couples to review:
Name and address changes
- Name. When a name changes through marriage, it is important to report that change to the Social Security Administration (SSA). The name on a person’s tax return must match what is on file at the SSA. If it doesn’t, it could delay any tax refund. To update information, taxpayers should file Form SS-5, Application for a Social Security Card. It is available on SSA.gov, by calling 800-772-1213 or at a local SSA office.
- Address. If marriage means a change of address, the IRS and U.S. Postal Service need to know. To do that, people should send the IRS Form 8822, Change of Address. Taxpayers should also notify the postal service to forward their mail by going online at USPS.com or their local post office.
The IRS revised Form W-4 for the 2020 tax year. The new form helps you determine how much federal income tax your employer should withhold from your paychecks based on your
- filing status,
- other income, and
- credits and deductions.
- After getting married, couples should consider changing their withholding. Newly married couples must give their employers a new Form W-4, Employee’s Withholding Allowance within 10 days. If both spouses work, they may move into a higher tax bracket or be affected by the Additional Medicare Tax. They can use the IRS Withholding Estimator on IRS.gov to help complete a new Form W-4. See Publication 505, Tax Withholding and Estimated Tax for more information.
- Married people can choose to file their federal income taxes jointly or separately each year. While filing jointly is usually more beneficial, it’s best to figure the tax both ways to find out which works best. Remember, if a couple is married as of December 31, the law says they’re married for the whole year for tax purposes. If you’re up against the tax filing deadline and haven’t yet changed your name with the SSA, you can still file a joint return with your spouse. Just be sure to use the name shown on your Social Security card.
Maybe you’ve heard of the so-called marriage tax penalty, a quirk in the tax law that sometimes causes married couples to pay more income tax than they would if they had remained single. Marriage penalties occur when the tax brackets, standard deductions and other aspects of the tax code available to married couples aren’t double those available to single taxpayers.
Over the years, Congress has taken steps to reduce the effects of the marriage penalty. For example, when recent tax reform revised the tax brackets, it made the thresholds for six of the seven tax brackets for married couples filing joint returns exactly double those available to single filers. One exception is the highest tax bracket:
- For the 2020 tax year, single people pay a rate of 37% on taxable income over $518,400.
- For married couples filing jointly, that threshold is just $622,051 — far from double that available to single taxpayers. That’s a significant marriage penalty.
In some cases, married couples actually get a marriage bonus. This means they pay less income tax as a married couple than they would if they stayed single.
Will your wedding day lead to a marriage penalty or a marriage bonus? That depends on a lot of factors. But, in general,
- The more unequal two spouses’ incomes, the more likely that combining those incomes on a joint return will pull some of the higher earner’s income into a lower bracket. That’s when the marriage bonus occurs.
- When two high-earning spouses have relatively equal incomes, the odds of getting hit with the marriage penalty go up.
Selling a home?
Marriage often involves combining two households into one. In some cases, that means selling homes owned by one or both spouses.
The good news is that once you’re married, the amount of tax-free profit you can receive from the sale of your home doubles from $250,000 to $500,000. Here’s how that works.
- To avoid paying taxes on up to $250,000 profit from selling a home, one spouse must have lived in and owned the house for at least two of the last five years.
- To qualify for the larger $500,000 tax-free gain, both spouses must have lived in the home for at least two of the last five years, and at least one spouse must have owned the home for at least two of the last five years.
When it comes to your jobs, being married could open up some new opportunities to save through your employer. Draw up a list of the tax-favored fringe benefits at each workplace. If you can be covered by your spouse’s medical plan, for example, maybe you can trade your coverage for another benefit.
Are There Other Marriage Tax Credits You Could Claim?
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 feel free to contact us at 256-782-1188.