Marriage and Taxes Can Get Complicated
Everybody loves a summer wedding. For the happy couple, the impending nuptials probably means that you’re closing in on the last items on your to-do list and concentrating on seating arrangements and place cards, but before you put your feet up and tell yourself that you’re done, there’s one last thing you need to consider – how getting married is going to impact your tax liability. The moment you get married, whether your wedding is in July, January, or the last day of December, the federal government considers you as having been married for the entire tax year, and that means that no matter what your filing status was in 2015, it’s no longer applicable. The sooner you take a close look at how your new tax status is going to impact your finances, the better off you’ll be.
What You Need to Know
People who are married are no longer eligible to file as single, and if you’re thinking that because you really liked your refund under that status you’ll just file married but filing separately then we have bad news for you – the two are not the same. The federal government doesn’t want people to try to avoid the higher taxes that come with filing together as married, so they’ve actually thrown a couple of penalties and hurdles in for those who file separately. There are some states – Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin – that are considered community property states, but filing separately in those is particularly complex.
Things to Consider
- If you have a prenuptial agreement, it can have a direct impact on your filing status choice, so you should speak with a tax professional to determine your best strategy.
- Though you may be up-to-date on your taxes and even be due a tax refund each year, if your new spouse owes past-due child support or back taxes to either the IRS or the state, then you may find yourself on the hook for them. Those past liabilities are taken directly out of any joint refunds that you may be entitled to in the future. The only way to get around this is to fill out a tax form called an injured spouse allocation form. Read more about it at www.irs.gov/taxtopics/tc203.html.
- If both of you have been taking the standard deduction each year then you will see no loss – where the single deduction is $6,300, the married couple single deduction is a straightforward doubling of that amount: all things remain equal. Unfortunately, things get more complicated if one of you itemized and the other didn’t. You will need to choose between either taking the standard joint deduction of $12,600 for 2016 or itemize but end up losing some of the deductions that you’ve previously been able to take.
- The Affordable Care Act could add complexity to your filing status if either of you (or both of you) purchased your health insurance through the marketplace. This is because your marriage represents a shift in family size, and that may impact the premium tax credit that you’ve been receiving. Depending on your circumstances, you may need to pay back some of the credit you’ve received in advance. There’s also a chance that if either or both of you are under the age of 26, you may have been on a policy that your parents purchased through the healthcare marketplace. If this is the case, things can get even more complex, so be sure to check your policy and see where the insurance premiums are listed on the return.
- Once you and your spouse start to combine your income, there’s a chance that you’ll fall into a higher tax bracket and end up with a greater tax burden. Depending on how much money you each make, you may even end up hitting thresholds that eliminate tax benefits you were previously eligible for. These could potentially include the child care credit if either of you are a parent and you both work. It could similarly impact the earned income tax credit, which you may end up having to either lose completely or see a significant reduction.
- If one of you has little or no income and you file jointly, then you may be able to take advantage of a Spousal IRA. The rules for these are complicated, and the deduction that you are eligible to take may be limited if either of you are covered by an employer’s retirement plan, but generally speaking you can take the lesser of either $5,500 or 100% of the working spouse’s compensation. That means that for the two of you, the total amount of contributions you can make to an IRA in 2016 is $11,000.
If either one of you has been listed on your parents’ tax return as a dependent, then once you get married they are going to lose you as a write off. It also means that they are no longer going to be able to get the benefit of an education credit, even if you are still in school and they’re paying your tuition, because the credit can only be taken on the return where the student’s personal exemption is used.
When it comes to capital losses, each of you were eligible to deduct up to $3,000 prior to getting married, and once you file as married that number remains the same. That means that where the two of you together could previously take a combined loss of $6,000 per tax year, that number is effectively cut in half.
Steps You Need to Take
If you’ve already thought about all of these items and have checked them off your list, then you can go ahead and enjoy the festivities! But if you haven’t, here is a checklist of things you need to do in order to ensure that all your tax issues are taken care of.
Contact the Social Security Administration to let them know that you’ve changed your name. Your new name has to appear on your Social Security card, and has to match up to the name that you file your tax return under or else your refund could be delayed, so make sure that you submit form SS-5, Application for a Social Security Card. You can pick it up at your local Social Security office, download it from the website, or request it by using the agency’s toll-free number, 800-772-1213.
If your marriage means that you have a new address, you need to let both the IRS and the U.S. Postal Service know about it. You can get an IRS change of address form at www.irs.gov/pub/irs-pdf/f8822.pdf, and a Post Office change of address form at www.moversguide.usps.com/icoa/icoa-main-flow.do?execution=e1s1
Notify the Marketplace of your change of status so that any credits that you received can be adjusted.
Talk to your employer or a tax professional regarding your withholding and estimated tax payments, as your new status may require that you either reduce or increase your withholding or estimated payments. Failing to take this step may lead to unpleasant surprises when it comes to paying your taxes.
Getting married should not mean tax stress. Consult one of our tax professionals if you need assistance.
For information about your marriage and tax situation, contact our office today at (909) 581-9235.