Marriage is a monumental, life-changing event. You are integrating two households, organizing a wedding, and making vows. You may have heard of a “marriage penalty” and other income tax difficulties.
Before submitting your tax return, be sure you understand the advantages and disadvantages of each filing status.
What Effect Does Marriage Have on Taxes?
Married couples must file as either married and jointly or married and filing separately.
Marital status is determined for tax purposes on December 31. This means that you must file your taxes as married even if you were single for the majority of the year.
When a married tax return results in a higher tax rate than if the pair were single, this is known as a marriage penalty. However, revisions to the tax code in 2001 lessened the likelihood of marital penalties by doubling the standard deduction and raising the income limits in the lowest tax groups. (Today, marital penalties are most common when both couples earn a lot of money.)
What Exactly is a Joint Tax Return?
A married couple can share tax deductions and credits by filing a joint tax return. A joint return, rather than two separate returns, may save you time and money.
Married couples may also file individually. Filing individually, however, does not imply that the IRS will treat you as a single person. Your deductions must be consistent if you are married and file separately. In other words, if one spouse itemizes, the other spouse cannot claim the basic deduction.
Why Do I Need to File a Joint Tax Return?
Prior to 2001, more married couples faced a “marriage penalty” when filing their income taxes. A marriage penalty arises when a couple pays more in income taxes than they would as individuals. Marriage penalties, however, have become less widespread as a result of changes in federal statutes.
When married spouses file jointly, they may receive a “marriage bonus.” Even if one partner is not working, married couples can file jointly. If one spouse earns much more than the other, filing a combined tax return may move the pair into a lower tax rate.
Kate is a psychiatrist who makes $200,000 each year. Her husband is a single parent. Kate would be in the 33% tax bracket if she were unmarried. They are in the 28% bracket if she files jointly.
Furthermore, certain tax deductions and credits are not accessible if couples file separate tax returns. Among them are earned Income Credit, American Opportunity Credit, Lifetime Learning Credit, Education Credits, Child and Dependent Care Credit, and the exclusion/credit for adoption expenses.
These tax credits and deductions may drastically lower your taxable income.
Many couples benefit from a combined return for these reasons. Furthermore, completing a joint return may take less time, and you may spend less money on tax preparation fees (since you only need to submit one Form 1040).
How Should a Married Couple File a Joint Tax Return?
The IRS Form 1040 is usually the starting point for every tax return. This form is required whether you are filing jointly or separately. You’ll also need proof of your and your spouse’s income, such as W-2 and 1099 forms, as well as exemptions, credits, and deductions, such as Form 1098 for the mortgage interest deduction.
Create a filing structure for income tax paperwork before you file your taxes. Otherwise, charitable donation receipts and other paperwork are easily misplaced.
Your combined tax return must be signed by both you and your spouse. Your signatures attest to the truth of your filing and hold you jointly and severally liable for any taxes payable. Unless both spouses sign the form, the IRS will not accept a joint tax return and consequently will not give a refund.
What are the Benefits and Drawbacks of Filing Jointly?
Some tax credits necessitate joint filing.
Certain tax credits are ineligible if you file separately. These include the Earned Income Tax Credit, the American Opportunity Tax Credit, the Lifetime Learning Tax Credit, Education Tax Credits, the Child and Dependent Care Tax Credit, and the adoption expense exclusion/credit.
Joint Filing May Enable You to Take Larger Deductions
The standard deduction for an individual in 2022 is $12,950. The standard deduction for joint taxpayers is $25,900. Separate filing also results in lower IRA contributions and capital loss deductions. Finally, if you file separately, you cannot deduct student loan interest, tuition, or academic expenses.
Your Tax Bracket May Change if You File Jointly
Income tax rates differ according to your tax band. Your income is pooled when you marry, which may result in higher tax rates. However, if one spouse does not work (or receives a low pay), the pair may be pushed into a lower tax bracket. (A spouse, on the other hand, can never be claimed as a dependent.)
- Example 1: In 2016, a software engineer earned $100,000 in taxable income. Her husband is a self-employed graphic designer who makes $40,000 a year. The engineer would be in the 28% tax bracket if she was single or filed separately. If she files jointly with her husband, they will be taxed at 25%.
- Example 2: A pulmonologist has a taxable income of $235,000 per year. In 2016, her husband earned $245,000 as a dermatologist. They would be in the 33% tax bracket if they were single. They are in the 38% tax rate as a married couple.
When Filing Jointly, an Unemployed Spouse May Be Able to Contribute to an IRA
Individual retirement accounts (IRAs) are savings accounts that assist you in saving for retirement. If the couple files a joint tax return, a non-working spouse can contribute to an IRA. In addition to saving for retirement, some IRA contributions are tax deductible.
If Your Spouse has a lot of Medical Bills, Filing Separately May Be the Best Option
Medical expenses that exceed 10% of your adjusted gross income may be deducted. If you and your spouse both earn a lot of money, it may be challenging to reach this 10% mark combined. Medical bills may surpass the 10% minimum if you file separately.
How Do I Obtain Innocent Spouse Relief?
Suppose a taxpayer believes that the IRS and/or a former spouse treated them unfairly by requiring that they repay all of the income tax liability incurred during the marriage. In that case, they may be able to claim relief as an innocent spouse.
The taxpayer claiming this status must demonstrate a variety of things, including proving to the IRS that they were an innocent spouse during the course of their marriage.
The following sets of factors are examples of background information that the IRS may consider:
- Whether the claiming spouse was coerced, threatened, or under duress to participate in the scheme;
- Whether the other spouse forged their signature on the couple’s joint tax return forms;
- Whether the other spouse subjected them to physical or mental abuse during the marriage; and
- If the spouse filing the request for innocent spouse relief was truly unaware and had no knowledge of the tax deductions that the other spouse waived.
- In addition, the IRS may consider other considerations when making its determination, as well as other conditions that the spouse seeking the request for innocent spouse relief must meet.
Should I Consult a Tax Attorney?
It might be difficult to comprehend how deductions, tax credits, and exemptions affect your income tax responsibilities. Consult with an income tax lawyer if you need assistance with a married tax return. Tax attorneys and CPAs can assist you in avoiding costly blunders and IRS fines.