For better or for worse, marriage is both a personal and financial decision. However, your wedding and honeymoon aren’t the only costs associated with saying “I do.” The IRS views married couples differently from singles, which changes how you file your taxes after getting married.
Newlyweds must file as either married filing jointly or married filing separately, and the tax benefits — or drawbacks — can vary from couple to couple. Depending on how much you earn together, you may be able to qualify for certain tax breaks and enter a lower tax bracket, but you could also end up paying a higher tax bill.
Unsure of where you and your partner stand? Don’t panic — we’re here to unpack how marriage affects your taxes. Our guide aims to help you navigate this stage of your life with greater clarity:
- What Are the Different Tax Brackets for Married Couples?
- How Getting Married Affects Your Taxes
- The Marriage Bonus: Tax Advantages of Getting Married
- The Marriage Tax Penalty: Drawbacks to Combining Finances
- Is It Better To File Jointly or Separately?
- The Bottom Line
What Are the Different Tax Brackets for Married Couples?
The 2019 tax brackets for married couples filing returns in 2020 are as follows:
How do tax brackets work?
Each tax rate applies only to the taxable income within its specific dollar range. For example, if you’re filing separately and your total taxable income is $50,000, you’re not paying 22% of it in taxes. The first $9,700 is taxed at 10%, the next $29,775 is taxed at 12%, and the remaining $10,525 is taxed at 22%.
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How Getting Married Affects Your Taxes
Once you’re married, your tax bracket isn’t the only thing that might change. Actions like moving from your primary residence or adopting a new surname will impact how you file your taxes. Here are some common scenarios that can affect your taxes after marriage.
If you’re moving to a new home …
Whether you and your partner are changing neighborhoods or downsizing from two homes to one, selling property can trigger the capital gains tax. If you’re filing jointly and your profits from the sale of a primary residence exceed $500,000, the excess is subject to this tax.
Since individuals selling their main home are required to pay taxes on a capital gain over $250,000, filing jointly with your spouse may benefit you financially if your profits are particularly high. For example, if you net a profit of $350,000 from selling your primary residence, you must pay taxes on $100,000. However, if you’re married and filing a joint tax return, this cap is raised to $500,000, exempting you from paying capital gains tax.
Note that the actual tax rate will depend on your income. Additionally, you’ll need to have owned and lived in the property for at least two years in the five-year period before the sale to qualify for this exclusion. And, unlike the ownership requirement, the residence requirement applies to both you and your spouse. Make sure to consult a tax professional if you’re unsure whether you’ll qualify for the full exclusion.
If you’re changing your name …
The name that you enter on your tax return must match the one on record at the Social Security Administration. If you take the last name of your spouse, create a hyphenated alternative, or choose some other option, you must enter the same name on your tax return. Failure to do so can ultimately delay your tax refund, so make sure to notify the SSA about any name changes.
Similar guidance applies to your home address. To ensure you get your tax refund and official correspondence, you’ll need to let the IRS know if you’ve changed your address. There are several ways to do this: in writing, by completing a specific form, or by entering your new address on your next tax return.
If you have an estate …
The IRS allows married couples to transfer an unlimited number of gifts between them, tax-free. A gift is any property — including money — that you transfer to another party without receiving something of equal or greater value in return.
Furthermore, if you leave your estate to your spouse, they aren’t required to pay estate tax in the event of your death. These perks may not be immediately relevant to newlyweds, but being prepared for all aspects of your future together is important.
The Marriage Bonus: Tax Advantages of Getting Married
There’s a common line of thinking that marriage is good for your taxes — and it’s generally not wrong. But what are the specific tax advantages you can get after tying the knot? Here are the top tax benefits and credits available to qualified newlyweds.
Common marriage tax benefits
The IRS allows couples filing jointly to benefit from each other’s financial situations. Some of the potential tax perks of being legally married include:
- Paying a lower tax rate. Due to how marginal tax rates apply, as described above, filing jointly with your spouse can lower your overall tax payment. For example, if your taxable income is $90,000 and your spouse’s is $30,000, you would fall into the 22% tax bracket based on your combined income of $120,000. However, if you choose to file separately, you would face the 24% marginal tax rate — resulting in more taxes owed.
- Qualifying for IRA contributions even without a job. A single taxpayer without taxable compensation — such as wages, commissions, bonuses, tips, or self-employed income — is typically ineligible to make contributions to an individual retirement account. However, a married taxpayer in the same earnings situation can use their spouse’s taxable compensation to qualify if they’re filing jointly.
- Claiming the capital loss deduction despite gains. While recording a loss on your tax return is nothing to get excited about, the losses from one spouse can offset the gains of the other spouse and lower their taxable income by up to $3,000. Moreover, if your net capital loss is greater than this amount, you can carry the loss over to future tax returns.
Marriage tax credits
Unlike tax deductions, which lower your taxable income, tax credits directly reduce the amount of tax you owe. Getting married can cut your tax bill by opening the door to certain credits:
- The child tax credit. The maximum amount of the child tax credit for 2019 is $2,000 per qualifying child. Single filers must have a modified adjusted gross income under $200,000 to qualify for the full amount of the credit. However, the child tax credit starts to phase out at $400,000 for married couples filing jointly, so someone earning above the limit for individuals may be able to claim the credit after marriage.
- The child and dependent care credit. If you’re married and filing separately, you typically aren’t allowed to take the child and dependent care credit. Eligible individuals and married couples filing jointly can claim a percentage of the funds spent on the care of a dependent up to $3,000 (or $6,000 for two or more dependents). You can claim the credit for qualified individuals such as children under age 13 or a spouse who has lived with you for at least half the year and is mentally or physically unable to care for themselves.
- The opportunity tax credit. Like the child tax credit, the American opportunity tax credit has a higher income limit for married couples filing jointly. To claim the credit for qualified education expenses paid on the behalf of an eligible student, your modified adjusted gross income must be lower than $90,000 — or $180,000 if you’re filing a joint return. Note that you’re ineligible to claim the American opportunity tax credit if you’re married and filing separately.
The Marriage Tax Penalty: Drawbacks to Combining Finances
The drawbacks to filing a joint tax return mainly apply to high-earning couples with similar incomes. While the bottom six out of seven tax brackets are doubled for joint returns, the income range for the top rate is similar for individuals and joint filers. In some cases, high earners would hypothetically pay less in income tax if they filed as single taxpayers.
Common marriage tax penalties
In addition to falling into a higher tax bracket, you may be prevented from claiming valuable credits or taking advantage of certain tax benefits if you file a joint return. Some of the potential downsides to getting married and filing a tax return together include:
- No earned income tax credit. To qualify for the earned income tax credit, a single individual’s earned income and adjusted gross income must be no more than $15,570 (with zero children). This limit is only raised to $21,370 for married couples filing jointly. Therefore, you might not qualify for the credit once you combine incomes with your spouse. Furthermore, you can’t claim this credit at all if you decide to file separately.
- Additional Medicare tax. You’re liable for a 0.9% additional Medicare tax if your income exceeds a set amount. While the income threshold for single individuals is $200,000, it only increases to $250,000 for married couples filing jointly. Furthermore, the threshold amount for married couples filing separately is lowered to $125,000. High-earning couples with similar incomes will likely reach their thresholds quicker than single individuals, resulting in an additional hit to their wallets.
- Capped deductions. Deductions aren’t always doubled to account for two incomes. In some cases, these limits are halved for married couples filing separately. For example, the deduction of state and local income, property, and sales taxes is typically capped at $10,000, but the limit is lowered to $5,000 if you’re married and filing separately.
Is It Better To File Jointly or Separately?
The financial benefits of marriage are apparent for households with an income disparity. A high-earning spouse could end up falling into a lower tax bracket, and greater threshold amounts may allow some couples to qualify for more tax breaks. At the same time, a large income disparity can also place couples above the threshold amount for certain tax breaks and disqualify one spouse from claiming a valuable credit. And, of course, many marriage tax benefits are only realized for people who file jointly, not separately.
In general, it’s wise to consult a tax professional to help maximize your refund. To give you a better idea of how each filing status can affect your taxes, below is a simplified, hypothetical comparison using a couple with an income disparity:
The Bottom Line
Can married couples file taxes separately? Yes. However, you should review your options and consult a tax professional to make the best decision for your family. Depending on your income, living situation, family size, and other factors, filing jointly may be the better option. Regardless of your filing status, understanding how marriage affects your taxes can help you build a more financially secure future together.