Getting Married? Tax Tips to Help You Happily Ever After.
In the end of June, and with so many couples beginning the-happily-ever-after phase of their lives together, I thought it was a good time to address the "marriage tax penalty", the quirk in the tax code that sometimes requires married couples pay greater income tax than had they remained single.
Here's a Quick Fact: Married couples actually often get a marriage bonus, paying less income tax than if they had remained single. Due to the the graduated nature of the tax system that applies higher tax rates to higher levels of income, when you combine incomes on a joint tax return, sometimes the result is a higher tax bracket. Initially, the the ceilings for the top of the 10 and 15 percent brackets on joint returns are exactly double the ceilings on individual returns. However, as incomes rise into higher level brackets, the ceilings on joint returns begin to decrease prior to the ceilings on an individual return. That can sometimes trigger a "marriage bonus" or "marriage penalty"; The more disparity between two spouses' incomes, the greater likelihood combining them on a joint return will pull some of the higher-earner's income into a lower bracket. That's when the marriage bonus occurs. Conversely, when both spouses have relatively equal and significant incomes, the odds of incurring the "marriage penalty" increase.
Here's A Few More Quick Tips:
1) Filing status: If you do face a marriage penalty, you can't get around it by continuing to file as a single person. If you're legally married on Dec. 31, you're considered married for the entire year and you must file as either married filing jointly or married filing separately. Only seldom does the married filing separately status work to reduce a married couple's tax bill.
2) Name Change: If you've changed your name, let the Social Security Administration know and file a Form SS-5. If the name on your tax return doesn't mirror what the Social Security office has for your SS number, any refund you're due will be delayed until the discrepancy is taken care of. If the tax filing deadline is looming (or past!) and you aren't able to change your name, you can file a joint return with your spouse using your "matching name", but then be certain to get the correct information to the SSA in time for next year's filing.
3) Withholding: You can refer to IRS Publication 919 to determine how many withholding allowances you deserve. Once you derive the accurate number, you can divide them however you choose, recognizing that each allowance is worth more to the higher earner in the form of lower withholding and greater net pay.
These are just a few factors to consider if you're recently married, and it is great to stay ahead of the curve before April 15th rolls around again and "the honeymoon is over." Its important to consider financial planning as a key part of family planning, and at EJ Pelton Company we are happy to help. If you have a question, please don't hesitate to call, you can reach us at 423-622-3156.