How Marriage Impacts Your Taxes
Marriage is an important personal milestone in many people's lives. As life-changing as marriage is on a personal level, it is also a major financial milestone. Married couples combine their financial assets into a single household income, and the Internal Revenue Service subjects them to a different withholding status than single people. For many couples, getting married opens up a whole slew of new considerations when it comes time to file a tax return.
Other People Are Reading
-
History of the Marriage Penalty
-
The marriage penalty refers to a tax law enacted in 1969 in which two married people making approximately the same incomes pay higher income taxes when married than they otherwise would have to pay if they were single and making the same amount of money. Prior to this, married couples were taxed more or less as individual taxpayers. This meant that a couple who each earned $35,000 per year were taxed at lower tax rates than single people who earned $70,000 per year, even though both households had the same monthly income. In 1969, the federal government drew up a new set of tax laws which taxed married couples at a higher rate than single earners. This was called the marriage penalty.
These new tax laws could penalize married couples who earned more or less the same amount quite severely. In 2000, the IRS would levy a 28 percent tax on a single person making between $26,250 to $63,550. Married couples would fall in the 28 percent tax bracket, however, if their combined earnings equaled between $43,850 to $105,950 the same year. This meant that if they both earned just $22,000, they would have to pay 28 percent on their income, while a single person making the same amount would fall under a much lower tax bracket.
Bush Tax Cuts for Married Taxpayers
-
In 2001, President George W. Bush enacted a series of tax cuts called the Economic Growth and Tax Relief Reconciliation Act of 2001. This comprehensive tax legislation reform measure sought to ease the tax burden that the 1969 tax legislation imposed on married couples. For many middle-class families, President Bush's tax cuts eliminated the marriage penalty altogether. Also, new tax cuts changed the standard deduction for married couples, so that they could take approximately the same standard tax deduction as two single people, as opposed to the previous lower standard tax deductions for married couples. President Bush's new tax laws were set to expire on January 1, 2011, but on December 6, 2010, President Obama and the U.S. Congress opted to extend them for two additional years.
-
Married Filing Jointly
-
If you get married before December 31 of any year, you must file as a married person for the entire year, regardless of how long you've been married, and you and your spouse must both immediately notify your employers of your new tax withholding status. You can opt to file a separate tax return from your spouse if you didn't live together for the majority of the year, but there are some tax advantages to filing jointly as a married couple. Under President Bush's tax laws, most lower- and middle-class married couples don't incur a tax penalty for filing their taxes jointly as a married couple. However, married couples who file separate tax returns automatically become ineligible for a wide array of tax benefits and credits, such as the childcare tax credit and deductions for the cost of higher education. You may also find that filing a joint tax return is much simpler than filing two separate returns with their incurring paperwork. For these reasons, most married people file their tax status as married filing jointly.
Married Filing Separately
-
Despite the benefits accrued from filing jointly as a married couple, some married people choose to file separate tax returns. This also has some advantages, especially if you and your spouse have significantly independent finances from each other. When two people get married and file their taxes jointly, the IRS will hold both spouses "jointly and severally liable" for the accuracy of the information on the joint return. This means that if your spouse underpays taxes or is audited for that tax year, the IRS can come after you as well. Married filing jointly means that you're both liable for the information you put on the joint return. This is true even if you divorced your spouse at a later date. If the IRS decides to audit the person you divorced for a year you filed as joint taxpayers, you may be liable for any mistakes, omissions or tax fraud your spouse committed. Proving to the IRS that you didn't know about the mistakes or fraud can be an extremely difficult endeavor.
By contrast, if you file separately, you aren't responsible for anyone's tax reporting except your own. If the IRS audits your spouse at a later date, or finds your spouse has committed tax fraud, you aren't liable for the tax filing years in question if you file your taxes as married, filing separately.
-
