Millennial Series: Part II – Tax Tips for Getting Married

Posted on Thu, Jul 20, 2017 ©2021 Drucker & Scaccetti

By: Cecilia Fernandes

 

The question has been popped; and the answer is “yes.”  Now, you have a wedding to plan.  Both of you immediately think of things like a dress, a reception hall, guest lists, honeymoon locations, etc. Rarely are taxes part of the equation while planning a wedding; but they are an important part of your new life together. In today’s blog, part of our Millennial Series, we’ll touch on some important steps to minimize tax exposure as a married couple and some other administrative tasks to make the transition from being single to married as smooth as possible.

 

Choosing a Filing Status

Your marital status is determined on December 31st of the tax year you are filing. It does not matter when during the year; you are considered married the entire year by the IRS and all 50 states if you became legally married during that tax year.

 

There is a tax myth about filing status in the year of marriage.  Many believe they have an option to file single “one last time” in the year of marriage. This is incorrect!  A married couple can choose one of the following two filing statuses:  married filing separately or married filing jointly. The latter is the most common and tends to be the most beneficial option for tax purposes. 

 

Couples treated as married for federal tax purposes enjoy many tax benefits, including the netting of capital gains, tax-free employer provided healthcare insurance, and increased allowable HSA ad FSA contribution limits. However, there are some instances where a married couple pays more taxes when filing jointly than they would pay if both partners  filed as unmarried.   This situation is known as the marriage penalty and is often caused when both partners earn relatively the same income.  Individuals that use the special allowance for rental real estate and couples who both individually have net capital losses may also find themselves in the marriage penalty.

 

While determining whether you are in a marriage penalty situation is not a simple calculation, your tax advisor can run a side-by-side analysis to determine whether married filing joint status helps or hurts you. The Tax Policy Center’s Marriage Bonus and Penalty Tax Calculator can help show where you may stand.

 

Name Change

Usually, marriage leads to a name change. Make sure the names you enter on your first tax return as a married couple match the names the Social Security Administration has on file. If a spouse plans on taking the other spouse’s last name, then they must file Form SS-5, Application for a Social Security Card. This will result in the issuance of a new card with your new name. If the names on your tax return are different then what the Social Security Administration has on file, it could cause a delay in processing your tax return and receiving refunds, if applicable.

 

Address Change

Getting married may also result in an address change. If you have moved you should make certain agencies aware of the change. If your address changes before you file your tax return, then write your new address on the return you file and the IRS will update its records when it processes your return. To ensure you receive IRS correspondence, you can file Form 8822 immediately after you move.

 

You should also notify the U.S. Postal Service of your change of address as well as banks or other financial institutions from which you receive important documents.

 

Make your employer aware of your address and name changes as soon as possible.  This will ensure your W-2 reflects your correct name and address and that your employer adjusts your state and local income tax withholding, if applicable.

 

Estimated Tax Withholding

Review your withholding once married to ensure enough taxes are withheld from your paychecks. You and your spouse’s combined income may move you to a higher tax bracket, which may result in a larger tax liability. 

 

Use the IRS Withholding Calculator or contact your tax advisor to help you determine the correct exemptions you should claim on this form. If you must change your withholding you should fill out Form W-4, Employee's Withholding Allowance Certificate and give it to your employer.  Increasing your withholding now will reduce your tax bill when it’s time for you to file your tax return.  However you may still have a balance due.  Consider having your tax advisor prepare a tax projection so you are prepared!

 

For help in understanding and completing Form W-4, see our previous blog in this series.

 

Deductions

Now that you are married you may have expenses that could make it worthwhile to itemize your deductions rather than taking the standard deduction. Generally, you should itemize your deductions if the total is greater than what your standard deduction would be. For 2016 and 2017 the standard deduction for a married couple filing jointly is $12,600 and $12,700, respectively. 

 

Some examples of expenses considered itemized deductions are state and local income taxes, real estate taxes, property taxes, mortgage interest, cash and non-cash charitable contributions, unreimbursed employee expenses, etc. See the 2016 Instructions for Schedule A for a full list of the expenses that qualify as itemized deductions.

 

We hope these basic tips are helpful in managing your taxes as newlyweds. Depending on your combined income and sources of income, more complex strategies can come into play. The Tax Warriors® have answers to your questions! Call on us for tax and financial planning to support a long and happy life together.

Topics: married filing jointly, Defense of Marriage Act, LGBT Tax Planning, marriage penalty, Name Change, Taxes, Marriage Bonus, Married filing separate, Millennials, wedding planning

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