Filed under: Taxes, Marriage, Income Tax, State Income Tax
While taxes probably aren't the first thing you think about when you're planning a wedding, they are a part of your life. Understanding how your taxes change once you're married will help you get the right financial start to your life together. Money troubles are a leading cause of divorce and taxes can be a big drain on your available money. Put those two facts together and you just might find that getting in control of your taxes early on might help you hold that new marriage of yours together.
The Big Change: Income Taxes
Of the taxes that affect you as an individual, your income taxes will likely change the most. In the United States, the three biggest drivers of your income tax rate are your marriage status, how you choose to file if you're married, and your income level. Whether the change from "single" to "married" is a help or a hurt depends on how much each of you make and whether you choose to file jointly or separately.
If you're married as of Dec. 31, you're considered married for the year, and you can either file "married filing separately" or "married filing jointly." For 2015, assuming nothing changes in the tax laws by the end of the year, the table below shows the tax brackets you'll face depending on your status:
| Marginal Tax Rate | Single | Married Filing Jointly | Married Filing Separately |
|---|---|---|---|
| 10% | $0 - $9,225 | $0 - $18,450 | $0 - $9,225 |
| 15% | $9,226 - $37,450 | $18,451 - $74,900 | $9,226 - $37,450 |
| 25% | $37,451 - $90,750 | $74,901 - $151,200 | $37,451 - $75,600 |
| 28% | $90,751 - $189,300 | $151,201 - $230,450 | $75,601 - $115,225 |
| 33% | $189,301 - $411,500 | $230,451 - $411,500 | $115,226 - $205,750 |
| 35% | $411,501 - $413,200 | $411,501 - $464,850 | $205,751 - $232,425 |
| 39.6% | $413,201 or more | $464,851 or more | $232,426 or more |
| Brackets based on your taxable income level. | |||
Generally speaking, the higher your income level and the closer your income and your spouse's income levels are, the more likely you are to be hit with a "marriage penalty" of higher taxes for being married. On the flip side, the lower your income or the further apart your income levels are, the better the chances that you'll get a "marriage bonus" of lower taxes for being married (particularly if filing jointly).
In many but not all cases, "married filing jointly" will result in a lower tax bill at the federal level, but things may change once your state taxes are considered as well. In addition, some deductions, credits, or other benefits may not be available if you file separate returns. For instance, your ability to contribute to a Roth IRA starts to phase out at $1 of earned income if you file separate returns while living together at all during the year, but the phase-out doesn't start until $181,000 if you file jointly.
Still, even if your tax bill is higher filing separately instead of jointly, you might want to file separately. That's particularly true if your marriage is in the process of dissolving or if you don't trust your spouse to be honest on his or her tax reporting.
Any Other Major Changes?
Another big tax change that happens to married couples has to do with gifts and inheritances. In most circumstances, spouses can give each other gifts of unlimited size without triggering a gift tax, and spouses can typically inherit from each other without triggering any estate taxes. Both the gift and inheritance rules work as long as both you and your spouse are U.S. citizens, but if your spouse isn't a citizen, there are limits to both.
Additionally, married couples can qualify to exclude up to $500,000 in capital gains on the sale of their primary home, compared with $250,000 for single people. Being married also allows a person to collect on his or her spouse's record for Social Security benefits. That's a useful tax-supported supplement in retirement or if a member of the couple dies or becomes disabled.
Love, Marriage, and Taxes
The tax consequences of getting hitched may not be the first thing on your mind when you're planning your wedding, but they will be with you throughout your married life. Understanding what changes with your taxes before you tie the knot can help keep the financial surprises in your marriage to a minimum. And that should help you focus your attention on what really counts -- your new life together.
Chuck Saletta is a Motley Fool contributor Try any of our Foolish newsletter services free for 30 days. Check out our free report on one great stock to buy.
