Be In The Know; 7 Tax Changes To Expect When You Tie The Knot

Marriage is good for many reasons. Apart from the fact that married couples are happier (at least a majority of them), marriage also takes some financial burden off your shoulders. How? You might ask.  Well, when you’re married, your combined taxes generally decrease especially if you file jointly. Although the difference isn’t usually big enough to save up for a new house, it will be sufficient to put a smile on your faces. But, how exactly does marriage change your taxes?

Filing status

As soon as you’re registered as a married couple, there are only two filing statuses that either of you can use when filings tax return; married filing separately (MFS) and married filing jointly (MFJ). Marriage statuses are determined on December 31st each year. This means that even if you’ve been unmarried for the better part of the year, as long as you tie the knot before the deadline, you are still required to update your filing status from “single” to either MFS or MFJ on December 31st.  In general, you’ll get more tax benefits if you file jointly than if you file singly especially given that some deductions and credits are only available to married couples filing jointly.

Tax brackets

The other thing that will change is your tax bracket. Tax brackets determine the highest rate of tax imposed on your income. In the U.S., tax brackets are different for each filing status meaning that as soon as you’re married, your tax bracket is likely to change. Moreover, when you marry and file jointly, then your income is combined. This may bump one or both of you into a higher tax bracket.

Added exemptions and higher standard deductions

When you marry and file jointly, you will be able to claim two personal exemptions (for each person) on the tax return. The same is NOT true if you file as a single individual; in which case you can only get one exemption. As if that’s not enough, the standard deduction allowed on the tax return is higher for couples filing jointly. Last year, for example, married taxpayers filing singly were allowed a standard deduction of $6,200 while married couples who filed jointly were allowed a $12,400 deduction. Things get even better if you have kids, with a $3,950 dependent exemption allowable for every child. These were figures for last year; you may need to check with a tax professional for additional information. Bhatia & Co, Inc, CI, located in Santa Clara, CA would be a good starting point.

You may need to change your W-4

Since you’ll be getting additional exemptions and higher standard deductions on joint tax returns, tax experts usually advise that you change your Form W-4. If you have a professional tax preparer, then he or she will know about this and make necessary adjustments to reflect the changes.

Buying or selling a house

Most couples buy their first house just after tying the knot while others also take this opportunity to sell their previous house to buy a new one or for other reasons. When you buy a home, the interest payable on a mortgage is deductible on your tax return as an itemized deduction. There are also benefits when selling. The tax law allows you to double the amount to be excluded from income from $250,000 to $500,000. Remember that this only applies if both of you owned the home before the marriage. If only one person owned the home, then you must have both lived there for at least two years.

Name change with the SSA

Typically, tax returns are filed under the Social Security Number (SSN). For this reason, it is important to notify the Social Security Administration (SSA) of any name changes resulting from the marriage. The SSA will move swiftly to process that change and relay the information to IRS before filing your return. Previously, there have been cases where the name on the SSN didn’t match the one with SSA. So, wait until the name change process has been completed before filing your return.

Affordable Care Act tax credits

Finally, if either or both of you are beneficiaries of the Affordable Care Act premium tax credit for health insurance purchased in either the federal or state Marketplace, reporting your marriage will help the Marketplace adjust your credit payment accordingly.  Other things that you may need to report to the Marketplace include change in income and change in family size.

Get Expert Advice from Bhatia & Co

There are several other things that may change in the tax front when you get married that your tax preparer will discuss with you. With plenty of experience serving taxpayers of Santa Clara, CA, Bhatia & Co, Inc, CI has accumulated a wealth of experience that enables the tax preparers to provide advice on any tax matter. Have any questions? Call us today.