Many people think that the only benefit to getting married is the wedding itself of walking down the aisle with a big party afterward. But did you know that there are actually some pretty significant tax benefits to tying the knot? If you’re on the fence about whether or not to get hitched, read on to learn more about how marriage can save you money come tax season.
It’s well-known that married couples usually have more financial stability than singles, thanks to their dual incomes, shared expenses, and spousal health insurance. For lots of pairs, though, the money benefits of getting hitched also include a smaller tax bill.
- 13 Tax Benefits of Getting Married
- 1. File Joint Taxes
- 2. Lower Tax Bracket
- 3. Higher Standard Deduction
- 4. Marriage Penalty
- 5. Spouse Can Be Tax Shelter
- 6. Greater Charitable Deductions
- 7. Better Benefit Packages
- 8. FSA Contributions
- 9. Childcare Deductions
- 10. IRA Contributions
- 11. Personal Residence Exemption
- 12. Earned Income Tax Credit
- 13. No Estate Taxes
- Tax Disadvantages To Being Married
13 Tax Benefits of Getting Married
There are many good reasons to get married, such as true love and compatibility. However, getting married also comes with a few tax benefits from the Internal Revenue Service. While no one would suggest that you only get married for the tax benefits, it is an added perk of from saying “I do.”
1. File Joint Taxes
The first tax benefit of marriage is that you can now file your taxes jointly. This means that you and your spouse will combine all of your income and deductions onto one tax return. For most couples, this results in a lower overall tax bill. Additionally, if one spouse makes significantly more money than the other, this can help to even out your taxable income and potentially lower your tax bracket.
If spouses file just one tax return, it will usually take less time to assemble the paperwork for the taxes—at least for the one not doing them—and it typically costs less than preparing two separate returns.
2. Lower Tax Bracket
Another tax benefit of marriage is that it may help you to lower your overall tax bracket. This is because the IRS has different tax brackets for married couples filing jointly than they do for single filers. As a result, you may end up paying less in taxes overall once you are married.
3. Higher Standard Deduction
There are two tax filing options for married couples: married filing jointly and married filing separately. The status you choose will affect your income tax bracket and standard deduction.
The Tax Policy Center has a “marriage calculator” to see if you were penalized or rewarded after tying the knot. Tax filers have the option of claiming a standard deduction or itemizing their deductions. If you don’t specify which option you want, the calculator defaults to the standard deduction.
4. Marriage Penalty
Another tax benefit of marriage is that you can now take advantage of the “marriage penalty.” This may sound like a bad thing, but it actually results in a lower tax bill for married couples. The marriage penalty kicks in when both spouses earn a similar income. In these cases, it’s often more beneficial for the couple to file separately rather than jointly. This allows each spouse to take advantage of their own personal deductions and exemptions, which can ultimately lower your overall tax liability.
Although the marriage tax penalty garners a lot of media attention, it still affects couples who earn similar salaries. However, many married taxpayers are astonished to find that they owe less to Uncle Sam after getting hitched.
5. Spouse Can Be Tax Shelter
If one spouse has a significantly higher income than the other, they can actually use their lower-earning spouse as a tax shelter. This means that the higher-earning spouse can transfer some of their income to their lower-earning spouse in order to help reduce their overall tax liability. This can be a great way to save money on taxes if you are in a high tax bracket.
6. Greater Charitable Deductions
Married couples can also take advantage of greater charitable deductions. This is because the IRS allows married couples to deduct charitable donations made jointly on their tax return. This can be a great way to reduce your overall tax liability if you and your spouse donate regularly to charities.
The amount of charitable deductions that can be made in a year is based on your income, which is typically no more than 50%. If you have a spouse, the limit usually rises. For example, if one spouse doesn’t earn double the amount of their deduction within one year, the extra can carry over to next year. When couples file taxes together, however, the total deduction takes both spouses’ incomes into account and they might be able to deduct more during the present time frame as a result.
7. Better Benefit Packages
If both spouses have benefits at their places of employment, they can often choose the most profitable benefits from the two plans. Benefits are seldom equal between spouses, so selecting a mix of benefits from both partners’ employments can lead to greater tax savings for couples. For example, a couple with dependents may use one spouse’s dependent care flexible spending account (FSA), which lowers their taxable income.
8. FSA Contributions
If you and your partner both have access to an FSA through separate employer-sponsored health insurance, you can lower your annual healthcare costs. Funds for an FSA come from your pretax paychecks, so using this money reduces the amount of taxes you owe. The funds can only be spent on FSA qualified medical expenses that are not covered by your health insurance plan, such as copays and deductibles. How much you save with an FSA depends on what tax bracket you’re in.
9. Childcare Deductions
If you have children, you can now deduct the cost of childcare on your taxes. This is a great way to save money if you’re a working parent. Just be sure to keep all of your receipts and documentation in order to take advantage of this deduction.
10. IRA Contributions
If you’re not receiving a paycheck, funding an IRA is out of the question. However, if you’re married, you may be able to contribute to an IRA based on your partner’s income.
11. Personal Residence Exemption
Selling a home usually nets you some money. But if you own your home with your spouse, you could potentially make twice as much profit from the sale.
12. Earned Income Tax Credit
Depending on your financial circumstances, couples may also benefit (or be penalized) by the earned income tax credit (EITC). The EITC is designed to help low to moderate income workers. If your spouse’s income is too high, you as a couple might not qualify for the EITC, even if you individually would have qualified. On the other hand, if a nonworking parent files taxes jointly with a low-earning worker, they may be able to increase their earned income tax credit.
13. No Estate Taxes
Finally, if one spouse passes away, the surviving spouse can inherit all of their assets without having to pay any estate taxes. For couples with significant assets, this can be a huge financial windfall.
When a wealthy person dies, if they are married their spouse usually inherits all of their assets without having to pay estate taxes on the inheritance. This is because there is a federal tax law that says you do not have to pay estate taxes on any amount of money left to a surviving spouse.
Tax Disadvantages To Being Married
There are a few tax disadvantages to being married that you should be aware of as well, but don’t worry, the benefits outweigh the disadvantages.
Loss Of Head Of Household Filing Status
If you are single and have dependents, you can often file as “head of household” on your taxes. This allows you to take advantage of a lower tax rate and a larger standard deduction. Unfortunately, if you are married, you can no longer file as head of household if you file jointly. This means that you will likely have a higher tax liability as a married couple.
However, you are able to file as head-of-household even if you’re married if you file separately, but this is only an option under these three circumstances:
- Your spouse did not reside in your home for the last six months of the year.
- You were primarily responsible for providing the main home of the dependent child/children and paid for more than half of associated costs.
- You will be claiming your dependent child/children on this return.
If you sign a joint return, you are just as responsible for any errors on the document as your spouse. If they lie or omit something, you could get in trouble too. However, if your partner made a mistake before marriage or if you had no idea it happened, then you aren’t legally held accountable.
Less Medical Deductions
The higher percentage of income you make, the less medical expenses you can deduct from your taxes. This might become more difficult to achieve given that you now have a combined income, unless one or both spouses had significant health care expenses.
Possible Refund Delay
If there is child support or a garnishment against one or both of the spouses, a refund may be blocked or delayed.
As you can see, there are both advantages and disadvantages to being married from a tax perspective. Be sure to consider all of the factors involved before tying the knot to ensure that you
As you can see, there are some pretty significant financial benefits to getting married from a tax perspective. If you’ve been on the fence about whether or not to tie the knot, hopefully this has helped you make a decision. Remember, consulting with a financial advisor or tax professional can help give you a more accurate picture of how marriage will impact your taxes.