Getting married is an exciting step in life, but it also comes with several financial changes and challenges that you should know about, and be prepared for. When it comes to taxes, certain things are going to change once you get married. Some couples do benefit from marriage as far as tax returns go, but many are those who end up paying more once they say ‘I do’. This phenomenon is referred to as the marriage penalty. There are changes you should expect after walking down the aisle as far as your taxes are concerned. These include:
According to the Tax Foundation, if your spouse earns more than you, say you earn $25,000 and your spouse earns $50,000, and none of you has kids and you don’t itemize your deductions, your federal tax burden will go down by $225 in 2015. This is because of the wider income brackets for joint filers, which will see less of the higher earning spouse’s income bleed into the 25% bracket. This means that less of your combined taxable income will be taxed at his or her top rate.
A high-income couple who earn equal amounts will suffer higher tax penalties once they get married. For instance, two spouses with a combined income of $300,000, with each earning $150,000, will pay $3,807 more as a married couple than they would have had they remained single. This is because combining the income pushed them into a higher tax bracket. And while the amount of income subject to 10 % and 15% tax brackets for joint filers is exactly double that for singles, the situation is different for the higher income brackets.
For low-income couples where one spouse has a child, say from a former marriage, a penalty is likely too. This is because after marriage, their Earned Income Taxed Credit will go down by about $1,018 as compared to what it was when they each claimed it as an unmarried couple. This is because their combined income will push them into EITC’s phase-out range for joint filers.
For couples who have similar paychecks, and bring home combined income of between $40,000 and $150,000, there will not be much change as far as their tax burden is concerned. This is because their combined income will not be taxed at a top rate higher than 25%, which is what each paid even before they were married.
While taxes should not deter you from getting married, if that is what you have always wanted, understanding what will change after you exchange your vows is a crucial aspect of financial planning.