- 7 Tax Benefits for Married Couples You Need To Know For 2021
- 1. Income Disparity = Lower Tax Bill
- 2. Higher Threshold for Some Tax Breaks
- 3. Spousal Contributions to an IRA
- 4. Increase Some of Your Tax Breaks
- 5. Benefits Shopping
- 6. Unlimited Gift Giving with No Tax Consequences
- 7. You’ve Only Got One Tax Return
- Bottom Line
- What are marriage penalties and bonuses?
- MARRIAGE PENALTIES
- MARRIAGE BONUSES
- EFFECTS OF THE TCJA ON MARRIAGE PENALTIES AND BONUSES
- MARRIAGE PENALTIES AND THE EARNED INCOME TAX CREDIT
- Updated May 2020
- Tax Changes After Marriage
- 1 – Filing Status Options – Are There Marriage Tax Benefits to Different Filing Statuses?
- 2 – Marriage and Tax Brackets
- 3 –Marriage and Tax Deductions – What Changes?
- 4 – Changing your W-4
- 5 – Buying or Selling Your First Home
- 6 – Gift Taxes and Estate Planning
- 7 – Name Change with Social Security
- 8 – Marriage Tax Penalty
- Are There Other Marriage Tax Credits You Could Claim?
- Getting Married: What Newlyweds Need to Know
- Marriage tax penalty or marriage bonus?
- What is your filing status?
- Check your withholding
- Coordinate benefits
- Change the name on your Social Security card
- Selling a home?
7 Tax Benefits for Married Couples You Need To Know For 2021
When deciding to tie the knot, you don’t often sit down and work out the tax benefits for married couples. However, as you consider your finances as a couple, one of the items you need to figure out is how to manage your tax bill in a way that benefits your situation.
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As you consider how to file your taxes and manage your money as a couple, here are some of the tax benefits that come with being married:
1. Income Disparity = Lower Tax Bill
One of the biggest advantages married couples see is a lower tax bill in cases where there is a large income disparity. Filing jointly can change your overall marginal tax rate as a couple as compared to what it might be when filing single.
Let’s say your spouse makes $35,000 a year, falling into the 12% bracket in tax years 2019 and 2020. You, however, make $250,000, putting you in the 35% bracket. Together, though, your combined income of $285,000 puts you in the 24% bracket. In dollar amounts, you pay less in taxes together than you would if you were living together but not married.
2. Higher Threshold for Some Tax Breaks
Some tax breaks come with income phaseouts. That makes it harder for you take a full deduction if you’re hoping to lower your tax bill. The child tax credit and student loan interest deduction are two examples of tax breaks that come with income phaseouts.
However, if you’re married filing jointly, you get a little more room to claim those tax breaks because the phaseouts begin at a higher income. So, if you might not have been eligible for the full deduction to your traditional IRA because of your income, being married might suddenly make you eligible to fully deduct your contributions.
3. Spousal Contributions to an IRA
Looking for another deduction, but not sure where you’ll get it? If your spouse doesn’t have earned income, you can still open an IRA in their name and make tax-deductible contributions. This provides you with one more opportunity to get in another tax break–and do it within the higher phaseout limit provided to married couples.
Realize, though, that the money you contribute to a spousal IRA remains your spouse’s no matter what happens to your marriage later.
4. Increase Some of Your Tax Breaks
One of the best ways to get truly tax-free money is to contribute to a Health Savings Account. Not only do you get a tax deduction for your contribution, but the money also grows tax-free in the account as long as you withdraw it for qualified healthcare expenses.
For the 2019 tax year, the maximum contribution is $3,500 for an individual and $3,550 for tax year 2020. However, if you’re married you can qualify to make a family contribution, where the limit is $7,000 for tax year 2019 or $7,100 for 2020.
Over time, being able to make a larger tax-free contribution to your HSA can yield huge benefits.
There might be other tax benefits, getting a higher deduction for charitable giving and seeing a higher personal residence gain exclusion when you get married.
Married couples can generally double some of their tax benefits as compared to filing as single. When you combine these types of increased benefits with an income disparity, it can save you even more money when it’s time to pay Uncle Sam.
5. Benefits Shopping
Do both of you have jobs with benefits? You can see which job offers the best benefits to take advantage of. Maybe one job offers the HSA, while another has a dependent care plan.
You can also run the numbers to see where you get the most benefit from healthcare plans, retirement plans, and other benefits. In some cases, you might tap into benefits from both jobs.
Run the numbers, look for the benefits, and see where you can reap the biggest tax savings.
6. Unlimited Gift Giving with No Tax Consequences
Not married? Once you give your love an amount of money that exceeds the gift tax exemption amount, you’re on the hook for the taxes. But if you’re married, you can give each other as much money as you want, without worrying about triggering the gift tax–even if you keep your finances mostly separate.
wise, spousal survivorship allows for you to pass your estate on to your soulmate without worrying about the estate tax. Of course, when your spouse dies, the estate tax comes into play with your heirs.
Plus, with certain accounts, IRAs, passing onto a spouse allows them to treat the IRA as their own, which can have its own benefits.
Double check the requirements and see if there are ways you can make the most of these advantages just by being married.
7. You’ve Only Got One Tax Return
You can reduce your expense and hassle by only filing one tax return as a married couple, rather than dealing with two tax returns.
It’s true that married couples can file separate returns. However, realize that you need to coordinate your returns in that case. You both can’t always claim the same deductions, and there might be other restrictions, including who gets to claim the kids. In many cases, married filing separately is filing as a single person–you won’t see some of the tax savings you would by filing jointly.
Plus, you end up with the expense of filing two returns, instead of only filing one return. You can save money on filing costs just by filing as a married couple.
There are times that filing separately can make sense, but it’s a good idea to consult with a tax professional and run the numbers before making that decision. However, if you don’t want to pay hundreds of dollars to have a professional file your taxes for you, you can still get professional help with TurboTax.
You’ll find plenty of affordable price options there and if you file as a couple, you may be able to take advantage of one or more of the following: Earned Income Tax Credit, American Opportunity and Lifetime Learning Education Tax Credits, Exclusion or credit for adoption expenses and the Child and Dependent Care Tax Credit.
Unless you’re both high earners with similar incomes, there’s a good chance that you’ll be better off getting married and filing jointly. There are times when filing jointly doesn’t make sense, such as when you’re afraid your significant other might not be completely honest about their situation. With a joint return, you’re both equally responsible for the tax bill–and any mistakes.
As you look at your finances with your significant other, consider the tax consequences and visit with a knowledgeable professional. You might not think you need a piece of paper to “prove” your love, but getting married might be about more than your love for each other. It could improve your financial situation by lowering your taxes.
What are marriage penalties and bonuses?
Marriage penalties and bonuses occur because income taxes apply to a couple, not to individual spouses. Under a progressive income tax, a couple’s income can be taxed more or less than that of two single individuals.
A couple is not obliged to file a joint tax return, but their alternative—filing separate returns as a married couple—almost always results in higher tax liability.
Married couples with children are more ly to incur marriage penalties than couples without children because one or both spouses could use the head of household filing status if they were able to file as singles. And tax provisions that phase in or out with income also produce marriage penalties or bonuses.
Marriage penalties are more common when spouses have similar incomes. Marriage bonuses are more common when spouses have disparate incomes. Overall, couples receiving bonuses greatly outnumber those incurring penalties.
Couples in which spouses have similar incomes are more ly to incur marriage penalties than couples in which one spouse earns most of the income, because combining incomes in joint filing can push both spouses into higher tax brackets.
A couple with two incomes and no children, for example, could pay more taxes as a married couple if tax brackets for joint filers were less than twice as wide as for single filers. Today, that happens only for couples with income above $622,000, but it was more common before the 2017 Tax Cuts and Jobs Act.
A couple with children can still face a marriage penalty because single parents can use the head of household filing status. Consider parents of two children, each parent earning $100,000 (table 1). Filing jointly and taking a $24,800 standard deduction, their taxable income is $175,200, for which their 2020 income tax liability is $26,207.
If they could file separately, one as single and the other as the head of a household, the single filer would owe a tax of $15,104 and the head-of-household filer would owe $8,245, yielding a total tax of $23,349. Their joint tax bill is thus $2,858 higher than the sum of their hypothetical individual tax bills, imposing on them a marriage penalty equal to 1.
4 percent of their adjusted gross income.
Couples in which one spouse earns all or most of a couple’s income rarely incur a marriage penalty and almost always receive a marriage bonus because joint filing shifts the higher earner’s income into a lower tax bracket.
Consider a couple with two children and $200,000 in total earnings, all earned by spouse two (table 2). Under 2020 tax law, filing a joint return rather than having spouse two file as head of household, will yield the couple a marriage bonus of nearly $7,400 as a result of two factors.
First, because tax brackets for joint returns (other than the 35 percent bracket) are wider than those for head-of-household returns, much of the couple’s income is taxed at lower rates under joint filing than the 32 percent marginal rate that spouse two would pay filing separately.
Second, the couple would benefit from an increased standard deduction. Couples filing jointly receive a $24,800 deduction in 2020, while heads of household receive $18,650. The combination of these two factors yields a marriage bonus of $7,399, or 3.
7 percent of their adjusted gross income.
EFFECTS OF THE TCJA ON MARRIAGE PENALTIES AND BONUSES
The 2017 Tax Cuts and Jobs Act (TCJA) limited many of the marriage penalties higher-income earners face, though penalties certainly still exist.
Except for the 35 percent bracket, all tax brackets for married couples filing a joint return are now exactly double the single brackets. This limits a main cause of previous marriage penalties.
It also expands the potential for marriage bonuses, as more couples find that filing together moves some income into lower tax brackets.
Additionally, the child tax credit phaseout now begins at $400,000 for couples, again double the $200,000 starting point of the phaseout for singles. Prior law began phasing out the credit at $75,000 for singles and $110,000 for couples, which could have introduced another marriage penalty for couples with children.
The phase the alternative minimum tax exemption is another source of marriage penalties for high-income taxpayers, because the income at which the exemption phaseout starts for couples is less than twice the starting point for singles.
While this is still true under current law, the TCJA increased both the alternative minimum tax exemption and the income at which it phases out, so the alternative tax will affect many fewer high-income taxpayers, singles and couples a.
MARRIAGE PENALTIES AND THE EARNED INCOME TAX CREDIT
Taxpayers who might qualify for the earned income tax credit (EITC) can suffer particularly large marriage penalties if one spouse’s income disqualifies the couple. However, marriage can increase the EITC (a bonus) if a nonworking parent files jointly with a low-earning worker.
Consider a couple with two children and $40,000 in total earnings, split evenly between spouses (table 3). Two factors will cause them to incur a marriage penalty of $2,357 in 2020.
First, if the couple were not married, one spouse could file as head of household with two children and the other would file as single. Filing in that way, their combined standard deductions would be $31,050, $6,250 more than the $24,800 standard deduction available on a joint return.
Second—and more significant—filing separate returns, the head of household could claim an EITC of $5,779 and a $2,760 child tax credit; the other spouse would get neither tax credit. On net, the head of household would receive a payment of $8,404 and the other spouse would pay $760, yielding a joint tax refund of $7,644.
Filing jointly, the couple would get a smaller EITC of $2,807, somewhat offset by a larger child tax credit of $4,000. Thus, filing jointly, the couple will receive a payment of $5,287, or $2,357 less than the $7,644 they would have if they could have filed separately; the difference equals 5.
9 percent of their adjusted gross income in 2020.
Marriage penalties are not confined to the tax system. Married couples often receive lower benefits from government programs than they would if they had not married. Moreover, the interaction of a tax penalty and a program-eligibility penalty can create effective marginal tax rates that approach 100 percent.
Updated May 2020
Tax Changes After Marriage
Editor’s Note: One of our most popular posts ever detailed is about marriage tax changes that may affect you after tying the knot – including marriage tax benefits and tax credits. So, how does marriage affect taxes? We’ll tell you here…
1 – Filing Status Options – Are There Marriage Tax Benefits to Different Filing Statuses?
Once you get married, the only filing statuses that can be used on your tax return are married filing jointly (MFJ) or married filing separately (MFS). Marriage tax benefits for filing taxes together are the following:
- The tax rate is usually lower.
- You can claim education tax credits if you were a student.
- You may be able to deduct student loan interest. (Student loan interest is not allowed when MFS, but it’s also limited by income, so if combined income is too high, student loan interest can be limited or disallowed.)
- You can claim deductions for children and childcare expenses. Child tax credit and credit for other dependents are both permitted on an MFS tax return. Child and dependent care credit is not.
- You can file for the Earned Income Tax Credit (if you qualify).
Your filing status is determined on December 31 of each year, so even if you were not married for most of the tax year, you do not have the option of filing as single if you are married on that date.
Generally, married filing jointly provides the most beneficial tax outcome for most couples because some deductions and credits are reduced or not available to married couples filing separate returns.
2 – Marriage and Tax Brackets
These tax brackets will determine the highest rate of tax imposed on your income. Tax brackets are different for each filing status, so your income may no longer be taxed at the same rate as when you were single. When you are married and file a joint return, your income is combined — which, in turn, may bump one or both of you into a higher tax bracket.
3 –Marriage and Tax Deductions – What Changes?
When you file your return each year, you have to determine if it is more beneficial for you to itemize your deductions as opposed to claiming the standard deduction.
Once you are married and own a home, many people find that it is more advantageous to itemize their deductions — typically because deductions such as mortgage interest result in a higher total deductible amount than the standard deduction.
The standard deduction allowed on the tax return is highest for married couples filing a joint return. (See exemptions and deductions explained.) For 2019, single taxpayers are allowed a standard deduction of $12,200, while married couples filing a joint return are allowed a deduction of $24,400.
4 – Changing your W-4
It may be wise to change your Form W-4 with your employer to reflect a change in marital status, as your form entries will be different than previous years.
5 – Buying or Selling Your First Home
Once you get married, your combined incomes may allow you to purchase your first home or you may choose to sell individual homes owned before the marriage. When you own a home, interest you pay on your mortgage is deductible on your tax return as an itemized deduction.
If you are selling a home, the amount of gain that can be excluded from income doubles from $250,000 to $500,000. Be cautious, though: if only one of you owned the home before the marriage, the $500,000 exclusion applies only if you both lived in the home as your main home for at least two years.
6 – Gift Taxes and Estate Planning
Spouses are allowed to give unlimited gifts of cash or other property to one another free of gift taxes. This provision has important implications for estate planning purposes, so be sure to revisit your estate plan once you get married.
7 – Name Change with Social Security
Because your return is filed under your Social Security number (SSN), it is important to ensure that the Social Security Administration (SSA) has been notified of any name changes that take place.
The SSA must process the change in the system and relay that information to the IRS before you file your return.
You should wait to file your return until after the name change process has been completed to avoid any complications that could arise if the name on the return does not match the SSN on file with the SSA.
8 – Marriage Tax Penalty
A marriage penalty exists when two individuals filing a joint return pay more tax than the sum of their individual tax liabilities calculated as if they were filing as single taxpayers.
One reason this occurs is because the MFJ income tax brackets and standard deduction are not always equal to twice the single income tax bracket and standard deduction.
Under current law, the marriage penalty is partly alleviated because the lower income tax brackets (10%, 12%, 22%, 24%, and 32%) and the standard deduction for MFJ are exactly double that of single individuals.
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, locate your nearest H&R Block tax professional.
Getting Married: What Newlyweds Need to Know
Getting married? Have you thought about how it will impact your taxes? You may need to select a tax filing status, adjust your withholding and sell your home.
Taxes might be the last thing on your mind on your wedding day, but tying the knot can have a big impact on your tax situation. Here are some of the most important things you should know.
Marriage tax penalty or marriage bonus?
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 ly 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.
What is your filing status?
If you do face a marriage penalty, don't try to get around it by continuing to file as a single person. If you're legally married as of December 31 of the tax year, the IRS considers you to be married for the full year. Usually, your only options are to file as either married filing jointly or married filing separately.
Using the married filing separately status rarely works to lower a couple's tax bill. Choosing that status comes with several special rules, including:
Check your withholding
Once you're back from the honeymoon, you and your spouse may need to adjust the withholding from your paychecks. You can do this by filling out a new Form W-4.
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 your
- filing status,
- other income, and
- credits and deductions.
One of the easiest ways to fill out Form W-4 is to first use TurboTax's W-4 Withholding Calculator. The calculator will walk you through a series of questions about your personal information, income, credits and deductions and provide instructions for completing a new W-4. Then, you simply turn the completed form into your employer and let them handle the rest.
Speaking of 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.
Change the name on your Social Security card
If you changed your name when you got married, you need to let the Social Security Administration (SSA) know. Otherwise, if the name on your tax return doesn't match the name the SSA has on file, it will ly cause problems at the IRS when your return is processed. If you're expecting a tax refund, it might be delayed until the discrepancy is resolved.
- You can change your name with the SSA by filling out Form SS-5. Take the completed form into your local SSA office along with documents proving your identity and an original or certified copy of your marriage certificate.
- 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.
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.
Still wondering how getting married will impact your tax return? Don't worry about knowing all the tax rules. If you use tax filing software TurboTax, the system will ask simple questions about your tax situation and search all the deductions you qualify for to help you get the largest refund.