When the vows have been made and the honeymoon is over, it's unlikely that taxes are the first thing on married couples’ minds. But with the recent Tax Cuts and Job Acts (TCJA) passed in December 2017, there are some important considerations to make regarding your future taxes and filing status as newlyweds. Below, we discuss the tax implications of getting married and how your filing status can affect your tax bill.
Pro: TCJA Reduced the “Marriage Penalty”
The “marriage penalty” is a phrase that’s commonly been used to describe the scenario in which married couples end up having to pay more in taxes than if they filed as two singles. Before the TCJA, more couples were prone to the “marriage penalty,” namely due to the tax bracket structure. For example, if two individuals with an income of $95,000 filed separately, they may land in the 25-percent tax bracket. But should they get married and file jointly with a combined income of $190,000, they would exceed the 25-percent tax bracket for married couples and be pushed into a higher bracket.
Con: The “Marriage Penalty” Still Exists For Some
While the TCJA may have reduced the widespread effects of the “marriage penalty” on couples, it has not been eliminated completely. With the new tax bracket adjustments bringing relief to most married couples, the existence of a “marriage penalty” still is due largely in part to the deductions and tax credits that some may be eligible for as individuals, but not when filing jointly.
Pro: Tax Bracket Ranges Are Exactly Double…
As we mentioned in the first pro, the TCJA has adjusted the tax bracket ranges to reduce the “marriage penalty.” This means that spouses earning a combined total of $400,000 or less are in the same tax bracket as they would be if they were filing separately, say as two individuals earning $200,000 a year. Each tax bracket, up through the 32-percent bracket, exactly doubles the limit from filing individually to filing jointly.1
Con: … Up to a Point
The tax brackets for filing jointly exactly double the tax brackets for filing individually up until the 35- and 37-percent tax brackets.
The 35-percent is:
- $200,000 to $500,000 for single filers
- $400,000 to $600,000 for joint filers
The 37-percent is:
- Over $500,000 for single filers
- Over $600,000 for joint filers
Of course, $600,000 isn’t even close to double $500,000, meaning high earning married couples could be facing the “marriage penalty” by filing together.
Pro: Tax Credits & Deductibles
There are certain tax credits and deductions offered only (or at a higher amount) to those who choose to file jointly. Some of these include:
- Earned Income Tax Credit
- Child and Dependent Care Tax Credit
- Adoption credit
- College tuition expenses deductions
- Student loan interest deductions
Although, with the TCJA raising the standard deduction rate for those filing jointly from $13,000 to $24,000, some couples may find that the need for itemizing their deductions is no longer necessary, even though it may have been in previous tax years.2
Con: Joint Filing Makes Both Parties Liable
When you and your spouse file jointly, both parties are legally liable and responsible for any tax owed, penalties or interest.3 This includes couples who filed jointly and later divorced as well as couples in which one spouse earns all the income. If you are worried your spouse may be attempting to evade taxes or claim less than they should, it’s important to understand that you could be held responsible or liable if you filed jointly.
You’ve likely heard that getting married can mean big tax breaks in your future, but the truth is it’s important to do your math and research carefully. This can help you and your spouse understand the tax impact of getting married and plan accordingly. And if you’re still unsure or have recently tied the knot, it may not be a bad idea to check in with your CPA or financial planner to thoroughly evaluate your situation.
If you're looking help with tax planning, let's talk in more detail about it. Please call our office or contact us here to schedule a time to discuss further.
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