This blog has been updated for 2023.
Marriage is an exciting time for couples however, along with most life changes; your tax situation also changes. It is important to understand basic tax considerations and consequences for newlyweds. This article explains some of the changes that will affect your tax filings after “I do.”
When filing an income tax return, names and Social Security numbers on your form must match the records at Social Security Administration (SSA). If you choose to change your name when you get married, it must be reported to the SSA by filing Form SS-5. If you change your address, the IRS must be notified by filing Form 8822.
When your marital status changes, you and your spouse may want to provide your employers with a new Form W-4. You and your spouse’s combined income may cause you to be pushed to a higher tax bracket. The IRS provides an online Withholding Calculator to avoid having too much or too little Federal income withheld from your paycheck.
There are five different filing statuses: single, married filing jointly, married filing separately, head of household and qualifying widow with dependent child. It’s important to remember that if you get married at any point during a given year, you are considered ‘married’ for the entire tax year, assuming that you are still married at the end of the year. Married couples have the option of filing a joint or separate tax return. However, often couples find that their income tax liability is lower if they file jointly, rather than separately.
If a couple chooses to file jointly (MFJ), they must report their combined income and deductions. The standard deduction is higher for joint filers and there’s a variety of tax benefits that would not apply when filing separately. When filing jointly, both spouses will be held accountable for all information reported on the tax return and therefore liable for all taxes, interest, and penalties that may occur.
A number of special rules apply when filing ‘married filing separately’ (MFS) and could incur higher taxes for most individuals. Separate filers are often excluded from tax breaks that joint filers are eligible for, such as Earned Income Credit and deductions for educational expenses. Lastly, if one spouse chooses to itemize their deduction the other spouse cannot claim the standard deduction.
In an update for 2021, the IRS notes, “If you are legally married in a state or country that recognizes same-sex marriage, you generally must file as married on your federal tax return.” The IRS also recognizes same-sex marriages created under the laws of the state of celebration even if the married couple resides in a state that does not recognize the marriage. If registered domestic partners are not considered married under state law, they should choose to file as “single” or “head of household.”
Lastly, if gifted a large gift, there may be tax consequences. Generally, the gift tax is the responsibility of the donor and the amount due is based on the gift’s value. As the gift-giver, tax rates range from 18-40% and you do not have to pay tax on gifts that are below the $15,000 annual exclusion limit. To avoid confusion, tax professionals recommend married couples to give money in the form of two separate checks, signed individually by each spouse.
Believe it or not, taxes are not as romantic as a wedding. However, understanding tax benefits and how to maximize them could help you and your spouse reach financial security. Marital tax benefits also mean more money to enjoy with your spouse, like planning a honeymoon or buying a home.