You just got married, congratulations! The benefits of marriage are great and plentiful, but they don’t necessarily include your tax return. There are many well-known tax benefits to marriage, especially if there is just one income, and you decide to file jointly. You can enjoy the ability to contribute to a spousal IRA, the ability to file jointly with two exemptions, the ability to have a larger exclusion from gain on the sale of your home, and you will have higher income limits for some credits, which may be beneficial.
If you decide to file separately, however, the benefits start to look more like disadvantages. There is a good chance that your tax preparation fees will go up. Many tax benefits are reduced. People who file separately face much stricter guidelines for activities such as contributing to Roth IRAs, deducting rental losses, and protecting Social Security payments from taxation.
Depending on state laws, the married filing separately status may require all assets and income be divided equally, a situation that many people are resistant to if they have separate accountants and differing attitudes concerning income tax habits. (Although to be fair, there are possible advantages to filing separately if one spouse has large medical or other expenses that may make itemizing deductions more attractive when filing separately. . .although not necessarily more advantageous than filing single had been. And no, if you are married, then filing with the “single” status is not a legal option.)
Although Congress has made special attempts to close the “marriage penalty” aspects of tax law, there are several issues that transcend the amount of standard deductions allowed, or rates of taxation. Are you familiar with your new spouse’s financial history? If income tax has been a relatively trauma-free experience for you each year, past events such as unpaid student loans or child support or back taxes can bring whole new meaning to your relationship with the IRS, even if the “injured spouse” option is chosen.
If one spouse has children, then there will be new guidelines for the earned income credit, and the combined income of husband and wife may preclude eligibility for this mainstay of the single parent. Another item to plan for is the amount of withholding on your periodic wage payments. This is a red flag for any tax return involving two jobs, and a recent marriage can create some tax-related anxiety in the spring.
The computer at “X” Corporation, where you work doesn’t know about your wife’s income at “Y” Corporation, and will only withhold from your paycheck as if your only income were the income at “X” Corporation. If you both changed your W-4 when you got married from single-1 to married-2, then there is a good chance that you will owe a significant amount of taxes at the year end. Until you know the bottom line on your tax returns, leave both paychecks at single-1, or possibly change one or both to single-0 if you are both high wage earners with no dependents.
The tax consequences of marriage can be significant, so do the research before April 15th, so that you can be prepared for the new monetary requirements.