While persevering in sickness and health is a familiar concept during a wedding, you’ll rarely hear about tax breaks at the altar. However, married couples can take advantage of a slew of tax benefits, especially when they file jointly. Here is a list of tax benefits of marriage and how to maximize your refund as a couple. You may also want to consider working with a financial advisor to help you with your full tax planning strategies, especially if you’re planning a big life event.
Tax Benefits of Marriage
While it isn’t wise to marry for financial reasons, tying the knot allows couples to enjoy the following tax benefits when filing jointly. Remember, the benefits below don’t apply to couples filing separately, which we cover in more detail below.
1. Potentially Lower Tax Bracket
Your income puts you into a specific tax bracket, meaning the government taxes your income at higher rates when you make more. However, if you’re married and filing jointly, the tax brackets may work in your favor.
For example, if you make $120,000 this year and file single, part of your income would land in the 24% tax bracket for 2022. On the other hand, say you are married and filing jointly. You make $120,000 and your spouse makes $40,000 this year. Your top tax bracket would be 22% because of how tax law places couples filing jointly. See more details in the table below to see how filing jointly can lower taxation on higher amounts of income:
|2022 Federal Income Tax Brackets|
|Tax Rate||Single||Married Filing Jointly||Married Filing Separately||Head of Household|
|37%||$539,901 or more||$647,851 or more||$323,925 or more||$539,901 or more|
2. Can Boost Retirement Savings
Federal law typically prevents single taxpayers who don’t earn wages from contributing to an individual retirement account (IRA). Fortunately, if a taxpayer who doesn’t earn wages is married, they can use their spouse’s income to fund their own IRA.
For example, if both spouses contribute to their own traditional IRAs, they would lower their taxable income by thousands of dollars. A spouse who has a retirement plan at work might lower the deductible amount from taxes – but the fact remains that the couple can each have IRAs.
Furthermore, couples filing jointly have a higher income limit for Roth IRA eligibility. Specifically, couples with a modified adjusted gross income (MAGI) of $204,000 or less in 2022 can make a full contribution to their accounts. In 2023, the MAGI limit will increase to $218,000.
3. Tax Shelter Opportunity
A spouse with a business that isn’t producing income wouldn’t be able to claim most deductions if they filed taxes separately. However, they can create a tax advantage for the couple. For instance, the other member of the marriage generating income can use their spouse’s losses as a tax deduction while also claiming deductions for mortgage interest payments, medical expenses and state and local taxes (SALT).
4. Estate Preservation
If one member of the couple passes away, they can transfer their entire estate – all their wealth and assets – to their spouse without incurring a nickel of estate taxes. As a result, married couples can preserve their wealth if one of them dies.
5. Increased Standard Deductions and Credits
When a taxpayer files single or married filing separately, the standard deduction is $12,950 for 2022. Married couples filing jointly don’t lose by taking the standard deduction. Instead, they receive double the amount for single filers, or $25,900, for 2022. Plus, filing jointly can lower your combined income enough to access tax credits such as the Child and Dependent Care Tax Credit and the American Opportunity Tax Credit.
In addition, taxpayers usually can only deduct charitable contributions of up to 50% of their annual income. However, those who file jointly combine their income to determine this limit. Plus, filing with a spouse allows you to carry over leftover contributions to the next year if one spouse’s income isn’t double the amount of their charitable giving for the year.
6. Less Expensive Tax Filings
Filing taxes can cost hundreds of dollars, so paying for one tax return instead of two significantly decreases expenses. In addition, filing jointly will likely require less time than filing twice.
Drawbacks to Filing Jointly
Filing jointly has its pitfalls as well. For example, by signing a joint return, you become liable for its contents, even if your spouse prepared it alone. As a result, you might experience legal ramifications if your spouse misreports or lies about numbers on the tax return. Fortunately, if you can prove you were unaware of the misinformation, you won’t suffer legal consequences.
Furthermore, your spouse might have a court-ordered garnishment for debt or child support. In this scenario, your spouse’s obligations might diminish or delay your joint tax refund.
In addition, couples might have trouble deducting medical expenses. For instance, for 2022, the couple’s medical expenses must be higher than 7.5% of their adjusted gross income (AGI). Therefore, a couple with a combined income of $100,000 must have medical expenses of at least $7,501 to deduct them from taxes.
Finally, couples filing jointly with an income of at least $250,000 will incur more taxes. Specifically, they must pay 3.8% of their income for net investment income taxes and 0.9% of their income for the Medicare surtax. On the other hand, those filing on their own won’t have to worry about those taxes if their income is beneath $200,000. Unfortunately, this figure doesn’t translate to a limit of $400,000 for those married filing jointly.
Similarly, each single tax filer can receive a $10,000 SALT deduction if they itemize deductions. However, those married filing jointly don’t receive a maximum of $20,000 for SALT. Instead, they still receive the $10,000 even though they might receive more if they file separately.
What Is the Marriage Penalty?
Filing jointly can also incur the marriage penalty for couples trying to claim the Earned Income Tax Credit (EITC). Although the EITC generally helps parents with modest incomes, couples filing jointly might have more trouble qualifying.
For example, a parent filing single or as head of household with two dependents can claim the EITC if their adjusted gross income (AGI) is $49,399 or less. On the other hand, a married couple with two dependents can claim the EITC if their combined income is $55,529 or less. Therefore, the income limit doesn’t double for couples trying to claim the EITC, making filing single more tax-efficient in some situations.
Filing Separately vs. Filing Jointly as a Married Couple
While filing jointly as a married couple has numerous helpful tax implications, filing separately brings its own pros and cons. For example, if you want a deduction for out-of-pocket medical costs, 7.5% of your individual income can be significantly less than your combined income.
Furthermore, high-income couples can reduce their income taxes by filing separately. For instance, say each member of a couple makes $400,000 annually. They would each stay in the second-highest tax bracket of 35% by filing separately. However, filing jointly would put them in the top tax bracket with 37% taxation.
That said, each couple’s tax situation is unique, and filing separately can occasionally create more financial benefits than filing jointly. Therefore, consulting a tax professional is essential to optimize your tax deductions as a couple.
Drawbacks of Filing Separately When Married
While specific benefits are available to couples filing separately, doing so will incur several disadvantages. For instance, if you have a spouse with a retirement plan through their work, you can’t deduct traditional IRA contributions if your MAGI is over $10,000.
Similarly, filing separately gives a standard deduction of $12,950 per person in the couple for 2022. As a result, couples filing jointly can take better advantage of the standard deduction because they receive a limit of $25,900 instead.
In addition, the law requires couples filing separately to choose between deduction types. So, both spouses must either take the standard or itemized deductions when filing separately. Finally, you’ll jeopardize your ability to claim the EITC, adoption expenses tax credit, Child and Dependent Care Tax Credit, Lifetime Learning tax credit and student loan interest deductions.
Finally, couples wanting to claim capital losses will have a $1,500 limit per person when filing separately. Conversely, those filing jointly receive a $3,000 limit.
How to Decide Which Filing Status to Use
Deciding how to file taxes as a couple can be confusing. Fortunately, you can understand which route benefits you more by preparing your tax return separately and jointly without submitting either return. Filling out each tax return allows you to calculate your refund or amount owed for each option.
You can also hire a tax professional to do this work for you. Preparing taxes can be time-consuming and complex and paying an expert can help ensure you make the most of your tax return.
The Bottom Line
The tax benefits of marriage are generally more favorable for those married filing jointly. For instance, you can lower your tax liability and claim more tax credits. However, filing separately might be more helpful in some instances, such as when you want to claim out-of-pocket medical expenses but have a high combined income. In any case, the best way to tell which filing type will benefit you is to use the tax forms for both methods or hire a tax professional.
Tips for Optimizing Taxes While Married
- Filing jointly or separately can cause major tax ramifications. Fortunately, you can consult a financial advisor if you’re unsure how to file. A financial advisor can also help you plan your finances as a couple and set goals, such as retiring by a specific age. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Filing taxes has gotten much easier because of user-friendly tax services. They streamline the filing process and can help you claim the most deductions and exemptions. Here’s a breakdown of the two most popular tax filing services, H&R Block and TurboTax.
- Tax regulations change each year. With the year winding down, it’s helpful to understand what tax breaks you can claim on your return.
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