Love, Taxes & Marriage: A Year-end Strategy

taxes and marriage

Ah, love and romance! It’s such an exciting feeling and some people think that all of life should be as effortless as falling in love.  However, when love leads to marriage every couple needs to include conversations about the taxman before heading to the altar of love! Uncle Sam has specific tax rates for married couples that need to be taken into consideration, especially if you’re considering getting hitched before the end of the year or early next year.

As far as the IRS is concerned, if you marry on December 31st, you are considered married for the entire year. So, when it comes to federal income taxes, those marrying next year may come out ahead by deferring or accelerating income, depending on the circumstances. If possible it might be advantageous to defer a year-end marriage until next year.

Graduated Tax Rates

What you need to look at or discuss with your tax attorney or accountant, is how filing jointly is going to affect your tax rates. The combined income of you and your intended spouse may put you into a higher tax bracket. Some people consider that a marriage “penalty”, however in some cases there are advantages.

For instance, if your joint income is at the top of the 10% and 15% tax brackets you’ll be taxed exactly twice as high as the ceilings if you were single in the same brackets. Taxes used to be less than double and Congress is making strides to change this.

Bonus Implications for Year-end Planning.

The more unequal your incomes, the more likely that combining them on a joint return will bring the higher-earner’s income into a lower bracket. That’s where you’ll see a marriage tax bonus. If this is your case, it will probably be better to defer income to next year if you are to be married next year. If you are in the planning stage, you might want to accelerate the marriage into this year if at all possible.

Keep in mind that you cannot avoid a marriage penalty by filing as a single person. You will either have to file “married filing jointly” or “married filing separately.” Rarely, if ever, does the married filing separately work to lower a couples’ tax bill.

And don’t try to play the mix and match game where one of you itemizes and claims all the deductions while the other claims a standard deduction. It doesn’t work that way. Both husband and wife must either itemize or use the standard deduction.

The same holds true for same-sex marriage on federal income taxes. Things are more complicated at the state level because most states that prohibit same-sex marriage do not recognize such marriages for state-income-tax purposes.

Post Honeymoon Details

Once you’ve tied the knot and you and your new spouse are back to daily life, the first order of business you’ll want to attend to is head to human resources and adjust withholding from your paychecks. Many double income couples have to worry more about under-withholding than over-withholding. The goal is to match withholding with what you’ll actually owe for the year — so you get neither a big refund nor a nasty tax surprise when you file.

Next think about the benefits you each enjoy and see if you can save money by switching to one or the other’s medical plan for instance. And, finally, if you are changing your name, be sure to let Social Security know about your name change. And may the three of you live happily ever after. You, your spouse and Uncle Sam!