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Tax Tips for Recently Married Taxpayers

by
Steward Financial
on
8/20/2017
Tax Tips for Recently Married Taxpayers

Just married? 

Congratulations, and welcome to a whole new world when it comes to your taxes. You may have heard that two can live more cheaply than one, but when it comes to financial issues you need to make sure that you are aware of all the ins and outs of the tax code as it relates to filing status, because there’s a big difference between filing singly and filing as married. Though some of the changes you need to make are as simple as checking off the right box, there are other things that you need to know now in order to save yourself some pain when tax filing season rolls around.

What’s in A Name?

If you’ve changed your legal name to that of your spouse, the first thing you need to do is report the switch to the Social Security Administration. Doing so ensures that your Social Security Number is a match with your new name, which will prevent confusion when it comes to filing your taxes. The process is easy and can be done either online using the agency’s website or by calling the toll-free number, 800-772-1213. The other option is to stop by your local Social Security office and fill out a form there. If you take care of this as soon as you’re married, you put yourself in a good position when it comes to getting your income tax refund on time, while failure to do so is almost sure to result in delays caused by the two not syncing up. 

Fix Your Address

Marriages often involve a move – and if that’s happened in your case then you need to make sure that all the right people know about it. In addition to friends and family who may want to send belated wedding gifts, you want to make sure that you’ve notified the U.S. Postal Service so that they can make sure that all tax-related mail (whether federal, state or municipal) reaches you; you also need to fill out Form 8822 for the IRS to let them know where to find you. 

Make Sure Your Tax Strategy is Still on Target

Whether you’re self-employed and paying estimated taxes or a W-2 employee whose employer withholds taxes on your behalf, there’s a good chance that the amount that you’re currently submitting to the government may need to change in light of your marriage. This is because combining your income with that of your spouse has a high likelihood of pushing you into a different tax bracket, or even make you lose certain write-offs and advantages that you were taking advantage of while single (think the earned income tax credit or a child care credit if either of you is a parent who works).

If you don’t make adjustments ahead of time you may find yourself owing more than you expect when it’s time to pay taxes, though there’s also the possibility that your tax burden will decrease if you file jointly with a spouse and one of you doesn’t work. Either way, you want to make sure that the correct amount is being withheld, whether to avoid paying the government too much (and missing out on the interest you could be earning on your money) or having to pay additional at tax time, possibly even with penalties due for underpayment. 

In the Marketplace? Make Sure They Get a Wedding Announcement

Well, maybe not an announcement, but the insurance marketplace is another one of those financial bodies that need to know about changes in your status so that they can make adjustments, not only to your coverage but also to the premium tax credit to which you may be entitled to. In many cases, this adjustment means that you don’t get as big a credit as you did when you were single. It also is particularly important for singles who had previously been on their parents’ Marketplace policy to make this change, as married individuals are no longer eligible to continue that practice.

What’s Your Status?

One of the biggest issues that newly married couples have to face is the determination of the appropriate filing status. The first thing you need to know is that no matter what day of the year you got married – whether January 1st or December 31st, the IRS considers you to have been married all year. That means that you are no longer eligible to file as single for the tax year in which you got married, even if it would have provided a significant tax advantage. The choices that are left to you are to either file as married filing separate or married filing jointly. Couples who have signed prenuptial agreements may have specific terms in their contract that determine how they can or can’t file. The married filing jointly status adds your two incomes together and filing on one tax return, using deductions on the combined income. Married filing separately requires two separate tax forms.

What’s tricky about filing separately once you’re married is that you are not able to take advantage of the deductions or tax rates you had when you were single. In fact, the government sometimes makes it harder for married people to file separately, imposing financial penalties and higher thresholds on those who do so. There are also some states, known as community property states, that make filing separately a complex tax. These states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Do Either of You Owe Back Taxes?

When you pledged that you two would become one, you might not have known that it applied to past due taxes, but it does. If the person who you married has liabilities for state unemployment debts or income taxes, child support or federal taxes, there’s a good chance that the Internal Revenue Service will use your joint tax refunds to help pay those debts off. The only way around having to pay your spouse’s past debts is to file a form with the IRS known as an “injured spouse” allocation form or to file using the “married filing separately” status. Unfortunately, doing the latter is likely to mean that you have a higher tax burden because of the penalties that the government imposes on doing so.

Have You Been Writing off Capital Losses?

Before you were married, you were each able to deduct a maximum of $3,000 on your tax return for capital losses … that means that between the two of you could write off $6,000 in total. Once you’re married, you are only able to write off $3,000 between the two of you. Think you can get around this rule by filing married but separate? The government anticipated that and limits you to $1,500 each.

Interested in an IRA?

Once you’re married, you have the option of taking out a spousal IRA. These IRAs are specifically for those couples who are married and in which one either earns no money or very little money. For the tax year 2017, they are able to deduct either $5,500 or 100% of the lower compensation, whichever is smaller. This means that couples may contribute as much as $11,000 per year for the tax year 2017, and those maximums increase to $6,500, or $13,000 together, for couples who are 50 or older. The only circumstances in which the deduction amount is limited further is where one member of the couple’s employer provides a retirement plan.

Married Deductions are Different

When you were single, the standard deduction was $6,350. But once you’re married (and assuming that both of you are under the age of 65), the standard deduction rises to $12,700. Though this represents everything remaining equal to what it was when you were single, there is a dramatic shift if either one of you itemized deductions while the other simply wrote off the standard deduction. You are not permitted to go in these opposite directions once you are married. You both either have to itemize or take the joint standard deduction, even if you file married but separated. 

What About My Parents?

If one or both of you were previously being claimed as a dependent on your parents’ tax return, that is likely to change, and the impact on them not being able to claim you once you’re married is likely to be even greater if they were also writing off education credits. Education credits can’t be deducted by anybody but the taxpayer that takes the personal exemption on you, and that means that even if your folks are paying your tuition, they lose your credit. On a positive note, many newly married people find that because their income isn’t high enough to shut them out of the credit, they are able to get a big tax credit as a result of the education credit that had once gone to their parents. 

Marriage changes a lot of things, and though taxes may be one of the less romantic aspects of your new life, they are still vitally important. For more information or explanation on how getting married impacts your tax liability, give a tax pro a call.

Jon Osborn, EA writes for TaxBuzz, a tax news and advice website. Reach his office at [email protected].

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Steward Financial

Steward Financial

Jon Osborn is a tax preparer based in San Dimas, California. His company, Steward Financial Services, offers a broad range of tax preparation, accounting and business consulting for small businesses. He loves to work with clients who are looking for answers to complex tax and business planning issues. He has owned several small businesses and worked with over one hundred small business owners. He helps his individual and business tax clients find the best ways to spend their money in order to minimize IRS tax. Small businesses looking to grow, sell or just increase cash flow are one of Jon's specialties.

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