How Does Marriage Change Your Taxes (And How Can You Benefit)?

Marriage brings with it many life changes, and one area that often gets overlooked is how it can impact your taxes. While getting married can be one of the happiest events in life, it also introduces new financial responsibilities, opportunities for tax savings, and potential challenges. Understanding how marriage affects your taxes is essential for making the most of the available benefits and avoiding potential pitfalls.

1. Filing Status: Married Filing Jointly vs. Married Filing Separately

One of the first tax-related decisions married couples will need to make is whether to file jointly or separately. The IRS offers two primary filing statuses for married couples:

• Married Filing Jointly (MFJ): This is the most common filing status for married couples, and it often provides the most tax benefits. Filing jointly typically allows you to access larger tax deductions, credits, and lower tax rates. For example, the standard deduction for MFJ is generally much higher than for those filing separately, providing a potential tax break.
• Married Filing Separately (MFS): In some cases, it might be more beneficial to file separately, especially if one spouse has significant medical expenses, miscellaneous deductions, or student loan interest. However, this filing status often results in losing eligibility for many valuable tax credits, such as the Earned Income Tax Credit (EITC) and child and dependent care credit.

In most situations, filing jointly will be the best option for couples. However, it’s always a good idea to consult with a tax professional to assess your specific situation.

2. Tax Brackets and Rates: How Marriage Impacts Your Tax Rate

Tax rates are structured in brackets, with higher incomes taxed at higher rates. When you’re married, your combined income is taken into account, which can impact your overall tax rate. For some couples, this may result in a “marriage penalty”—a situation where the combined income puts them in a higher tax bracket than if they had filed separately as single individuals.

However, for many couples, marriage can reduce the overall tax burden by allowing for tax rates that are more favorable. In recent years, the tax brackets for married couples filing jointly have been adjusted to account for the marriage penalty, often allowing married couples to pay lower taxes compared to single filers in similar situations.

3. The Standard Deduction: A Bigger Benefit

One of the biggest benefits of marriage when it comes to taxes is the increased standard deduction. For 2023, the standard deduction for married couples filing jointly is $27,700, while for single filers, it’s only $13,850. This means married couples can deduct more from their taxable income, which can lead to substantial savings.

Even if you don’t itemize your deductions, this larger standard deduction can significantly reduce your tax liability. If you’re unsure whether itemizing or taking the standard deduction is best for you, it’s worth having a conversation with a tax advisor who can help you evaluate your options.

4. Tax Credits for Married Couples

Marriage also opens up the door for certain tax credits that could help you save even more money. Some of these include:

• Child Tax Credit: If you and your spouse have children, the Child Tax Credit can provide substantial savings. For 2023, the credit is worth up to $2,000 per qualifying child under the age of 17, with up to $1,500 of that being refundable.
• Earned Income Tax Credit (EITC): The EITC is a valuable benefit for lower-income working couples. The amount of the credit increases as your income decreases, and being married may increase your eligibility for the credit, especially if you have children.
• Dependent Care Credit: If both you and your spouse work and pay for childcare, you may qualify for the Dependent Care Credit. The maximum credit is 35% of up to $3,000 in care expenses for one child or $6,000 for two or more children.

5. Retirement Accounts and Marriage

Marriage can also provide several opportunities to boost your retirement savings and tax benefits. For example, married couples can contribute to each other’s retirement accounts, which can help reduce your taxable income while planning for the future. Contributions to a traditional IRA or 401(k) reduce your taxable income for the year in which the contribution is made.

Additionally, married couples can open spousal IRAs, allowing a non-working spouse to contribute to an IRA, which can be a powerful way to save for retirement even if one spouse doesn’t have earned income.

6. Health Savings Accounts (HSAs)

Another tax-advantaged account that can benefit married couples is the Health Savings Account (HSA). If you’re married and have a high-deductible health plan (HDHP), you can contribute to an HSA to cover out-of-pocket medical expenses. In 2023, the maximum contribution limit for a family is $7,750, with an additional $1,000 in catch-up contributions for individuals 55 or older.

Contributions to an HSA are tax-deductible, the money grows tax-free, and withdrawals for qualified medical expenses are also tax-free. This can be a fantastic way to reduce your taxable income while saving for healthcare costs in the future.

7. Estate Planning and Taxes

Marriage can also impact your estate planning and taxes. When you’re married, you can leave unlimited assets to your spouse without incurring estate taxes due to the unlimited marital deduction. This is a significant advantage for married couples, as it helps reduce the tax burden on your estate when one spouse passes away.

Additionally, married couples can take advantage of portability. This allows the surviving spouse to inherit the deceased spouse’s unused estate tax exemption, which can result in substantial tax savings for your estate.

How We Can Help

Marriage can significantly impact your taxes, but with the right knowledge and planning, you can take full advantage of the benefits available to you. At SD Bookkeeping by Paul Anderson, we specialize in helping married couples navigate the complexities of tax laws and make the most of available deductions, credits, and retirement planning options. Whether you’re filing jointly or separately, we can help you determine the best approach to maximize your savings.

If you have questions about how marriage affects your taxes, or if you need assistance with your bookkeeping, accounting, or tax services, contact us today for expert guidance tailored to your unique situation.