Getting Married and Filing Taxes FAQ

Below are some common questions about getting married and filing taxes. This information is meant to address common questions that people might have the first time that they file taxes after getting married. There are many misconceptions about getting married and filing taxes that the information below hopes to improve knowledge upon.

 

What is the Marriage Penalty?

In what case does it save you money being married? Only when one person make the vast majority of the income?

If one person makes the vast majority of the income, then the combined income (close to majority earner’s income) will move slower through the tax brackets when filing as married than filing separately (the tax brackets when filing as married are about twice as much). It’s only a penalty in certain scenarios – specifically, if you and your spouse have roughly the same income. If you have very different incomes (most commonly, if you work but your spouse is stay-at-home), it is actually a bonus, because the married tax brackets are spaced further apart.Basically, the tax code penalizes marriages between equal income earners and rewards the more traditional breadwinner/homemaker family structure. It’s up toyou whether you think that’s a good thing or a bad thing.

 

If in a couple only one person earn then what the case would be ?

In a one income family, the family could move slower or avoid the upper tax brackets by filing jointly. This would give them a significant tax savings.

 

Married Filing Jointly

So if you’re married, why file separately instead of jointly if the final cost you’re going to pay as a couple is the same? Does this situation where the end cost is the same separately or jointly only apply when you and your significant other are making approximately the same amount?

Married filing separately is beneficial when it comes to Itemized deductions. Certain deductions like Health care expenses have limit you have to meet before you can start claiming it. I believe it is 7%. So if one of the couple had a rough year with medical costs, they might not have met 7% of the combined income; but when viewed against their own income this becomes a significant adjustment. In this situation you would then pile on other deductions (mortgage interest, charitablecontributions, etc) and maximize the deductions on one set of income.

 

Marriage Tax Penalty

What should I do if I don’t want my taxes being taken out right away? What should I write on W-4 form? Or let’s say person made less than $8000, and the taxes have been taken out anyway, what this person should do to avoid this?

The law requires you to have taxes withheld according to prescribed formulas. You should fill out the W-4 accurately, according to the instructions that come with it. The W-4 includes directions for determining whether you are “exempt”, in which case you write the word “exempt” on the right line.

http://www.irs.gov/pub/irs-pdf/fw4.pdf

 

Why is there a marriage penalty in the first place?

The U.S. tax system is progressive, meaning that people with higher incomes pay a higher tax rate than people with lower incomes. Generally speaking, only couples with similar, high incomes will have to pay more taxes if they file jointly versus filing as individuals. For middle class and lower income couples, they tend to benefit from filing jointly. But in the case of couple B the total tax paid is lower than if the person who made $180,000 and the person who made $20,000 filed separately, even though together, their combined income is the same as couple A, who earn $100,000 each. My take on this is that it attempts to discourage concentration of wealth in couples who already have high incomes, and instead encourages the wealth to be more evenly distributed in society.