As a newlywed, you may be confused about entering the uncharted tax territory that lies ahead. People of varying civil statuses experience massive tax differences. The tax code in the United States, for instance, generally favors married couples over single individuals. Tax planning services can help you understand and identify what happens when two separate incomes become joint. An adviser can pinpoint significant changes that are made to the tax policy and determine how to best maximize your tax filings, especially after marriage.
Your filing status will change once you get married as you will likely file as “married joint” instead of as single. This allows you to experience lower federal tax rates than you did before your marriage. You can also take advantage of tax breaks like the earned income credit (EIC) and various other educational deductions and credits. This means that if either you or your partner is at risk for an audit or owes a lot in back taxes, the Internal Revenue Service (IRS) offsets the refund with the joint return of the other spouse.
Your tax bracket will likely change when you get married and whether or not this works in your favor will depend on your financial situation. The larger the discrepancy is between your income and your partner’s income, the more likely it is that you will be able to lower your tax burden and experience a marriage bonus. In this case, the lower-earning spouse serves as a tax shelter for the higher earner. On the other hand, if you and your partner earn similar incomes and are relatively high earners, you could suffer from an even higher tax burden and experience what is called a marriage penalty. A married couple’s income can easily be pushed into this higher tax bracket.
Other Financial Gains
Marriage can drive down your car insurance premiums. The cost of insuring two cars under just one insurance policy is much less than having an individual policy for each car. Insurance companies usually offer a multicar discount and have rate reductions in place for married couples. In addition, you can save more by bundling your home and automobile policies, increasing deductibles, and opting for a pay-as-you-drive policy.
Unmarried couples spending non-large gifts and sharing other large expenses risk triggering gift tax. Conversely, married couples are exempt from gift tax as the IRS views them as a single taxpayer. This significant financial benefit to marriage means couples are able to transfer assets between themselves as non-taxable gifts without creating a tax issue.
In addition, marriage can improve your available options for social security (SS). You and your partner can choose to claim your own SS benefits or obtain spousal benefits under the earnings of the other. This will matter more significantly if one partner was unable to pay into SS for at least ten years or if one earns significantly less than the other.
You can get additional tax savings when you get married if you are able to maximize the benefits associated with filing for a marriage joint tax account. This includes decreasing insurance premiums, lowering tax burdens, and being exempt from gift tax.