Did You Get Married in 2022 or Planning to Marry in 2023?

Your tax situation changes when you get married, and your options for filing taxes for the entire year are based on your marital status as of December 31.

How Does Marriage Affect Taxes?

Taxes can have a wide range of effects on marriage. Although everyone’s circumstances are unique, there are some tax advantages to marriage that can help you pay less in taxes, as well as marriage penalties that can lead to higher
taxes. RSG has got you covered, whether you’re looking to learn how marriage affects your taxes from a financial standpoint or simply want to know what steps to take.

Tax Benefits of Marriage

Nobody would recommend getting married just to get tax benefits, but there are a few wedding presents offered by the tax code to people who exchange vows. When filing your taxes, remember these tax benefits of getting married and how to make the long honeymoon a little more enjoyable.

● Charitable Deductions

The maximum amount of charitable contributions that can be written off
each year is based on your income and is typically limited to 50% of said income. That restriction can be increased by getting married. The surplus donations are carried over to the following year if one spouse doesn’t earn at least twice as much as they give to charity in a given year. Couples filing jointly, however, may be able to deduct more money in the current year because the deduction amount considers the income of the other spouse.

● Faster and Cheaper

This one should be obvious. It requires less paperwork, time, effort, and money for two people to file one return.

● Estate Protection

A married individual has the option of leaving their entire estate to their partner. By doing this, the federal government is prevented from collecting an estate tax until the survivor’s spouse passes away.

● Benefit Shopping

When both partners have benefit packages from their separate employers, they often have the option to select the benefits they want from each package. Often, one partner offers a better total package than the other. Tax-saving benefits include dependent care flexible spending accounts (FSAs), which immediately lower a couple’s taxable income. There are several tax-related considerations for newlywed couples. It’s easy to skip a step or check the wrong box, which could lead to tax problems that could wreck your life for years. Obtain expert advice if you have any questions about your new filing status.

● Income Inequality Reduces Tax Bill

If a substantial income discrepancy exists, one of the main benefits married couples have is a decreased tax bill. Your overall marginal tax rate as a couple can change when filing jointly compared to when filing separately.
Let’s imagine your spouse has an annual income of $35,000 and will pay taxes in the 12% bracket. However, your income is $250,000, which places you in the 35% tax bracket. Your combined income of $285,000, however, places you in the 24% tax bracket. In terms of money, you pay less in taxes as a couple than you would if you were sharing a home but not married. Federal income tax rates and tax brackets for 2022–2023.

● Some Tax Breaks Have a Higher Threshold

For many tax benefits, there exist income phaseouts. It becomes more complicated for you to claim the full deduction if you wish to lower your tax obligation. The child tax credit and the student loan interest deduction are two instances of tax benefits that have income phaseouts. However, if you’re married and filing jointly, you have a little more room to take advantage of those tax benefits because the phaseouts begin at a higher salary. Therefore, if you were previously ineligible to deduct your contributions to your conventional IRA in full due to your income, getting married may suddenly make you eligible to do so.

● Increase Some of Your Tax Breaks

Contributing to a Health Savings Account is among the best methods to obtain actual tax-free money. In addition to receiving a tax break for your donation, the money grows tax-free in the account as long as you use the withdrawals for authorized healthcare bills. The maximum contribution for self-only for the 2022 tax year is $3,650. The maximum family contribution you may make is $7,300 if you’re married, though. A $1,000 catch-up contribution is available to those over 55. The ability to contribute more to your Health Savings Accounts (HSA) tax-free can lead to significant benefits over time.

● Tax shelter

Your spouse may be a tax shelter. While it’s not a good idea to date someone simply because their business isn’t profitable, it’s important to remember that having a partner who has a negative net worth in a marriage can be beneficial to both partners. Some deductions, particularly those relating to housing, may not be available to the spouse making a loss, say, in business. In a joint tax return, the spouse earning an income might be able to use those unused tax deductions and deduct the other’s loss.

● Contributions From a Spouse to an IRA

In general, a single taxpayer who is unemployed is ineligible to contribute to an Individual Retirement Account (IRA). However, a married taxpayer who is unemployed is still permitted to fund an IRA with joint income. Couples who qualify and file jointly may contribute to two separate IRA accounts, one for each spouse, and receive substantial tax benefits. Additionally, married couples tend to have  greater income thresholds than single people, at which IRA benefits begin to phase out. Both spouses would typically be able to make non-deductible IRA contributions or perhaps a Roth IRA contribution, even if a couple isn’t qualified for a tax-deductible IRA contribution because of income limitations.

Marriage Tax Penalty

When a married couple’s combined tax rate is higher than it would be if they were filing separately, it is known as a marriage tax penalty. This punishment is effective due to state and federal tax brackets that don’t always double the single-income filing thresholds for married couples. This happens primarily with those who make equal amounts of money but earn moderate to high incomes. The tax brackets were altered by the 2017 Tax Cuts and Jobs Act to reduce the penalty. If you and your partner make more than $647,850 in combined income on your 2022 taxes, you may still be subject to the marriage tax penalty. State taxes—which don’t all look the same—are areas where this penalty is more common. Only some income tax brackets in 15 states are subject to some type of marriage penalty. These states will be in effect as of 2022: California, Georgia, Maryland, Minnesota, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, Vermont, Virginia, and  Wisconsin. If you reside in one of these states and want to avoid the tax, you must either move, which could cost more than the tax, or you must use deductions to make up the difference. In either case, you’ll have to pay your fair part in taxes, but with the appropriate planning, you might be able to lower that total.

Image: Alvin Mahmudov/Unsplash