Getting married can cause unexpected changes to your taxes.
Some two-income couples may owe more in taxes, just because they get married, than they would together if they each remained single. As unromantic as it may sound, some couples planning to get married this month or next might find that postponing the official ceremony until 2023 could result in significant tax savings for this year. But in other cases, some couples who get married may find that they owe less together than if they were still single.
These strange tax law twists have long been known as the marriage penalty and the marriage bonus. They continue to exist in many cases and to widely varying degrees despite tax changes enacted in 2017 that included significant relief for millions of married couples. Marriage penalties “generally occur when various tax provisions (exclusions, deductions, credits, and tax brackets) for married couples are not twice the comparable amounts for singles,” Chenxi Lu and Janet Holtzblatt say on the Policy Center website. Urban-Brookings District Attorney. .
The penalty can be especially large for some high-income couples who each have large and roughly similar incomes, but it can also affect lower-income taxpayers. And many tax provisions can play a role in the size and scope of the penalty, says John Buchanan of Wolters Kluwer Tax & Accounting US. Here’s a look at some of them:
Deductions and other factors
Tax brackets: The 37% federal income tax bracket for married couples filing jointly isn’t twice as large as the bracket for singles, says Stephen W. DeFilippis, owner of DeFilippis Financial Group, a wealth management firm and taxes in Wheaton, Illinois, and also an enrolled agent, which means he is authorized to represent taxpayers at all levels in the IRS. For the 2022 tax year, the top federal income tax rate of 37% applies to singles with incomes greater than $539,900. For married couples who file a joint return, it applies with income greater than $647,850.
Fiscal credit: Low-income workers can be hit with a marriage penalty because of the complexities of the earned income tax credit, or EITC, says Mr. DeFilippis. This complex provision was designed to help a large number of low-income workers and families.
Net capital losses: With stock prices down so far this year, many investors may have greater realized capital losses than their realized capital gains. In that case, they can generally deduct up to $3,000 a year of their net capital losses ($1,500 if married filing separately) from wages and other income. That $3,000 limit is the same for single and joint filers. Therefore, two singles could deduct net capital losses of up to $6,000, while joint filers are limited to up to $3,000.
SALT deduction: For taxpayers who itemize their deductionsyouThe maximum state and local tax (SALT) deduction is $10,000 for joint and single filers. Therefore, two singles could deduct up to $20,000, but joint filers are limited to $10,000. (For those married but filing separately, it’s $5,000 each.) This can be especially important for couples who itemize and live in high-tax areas, such as New York City, California, and New Jersey.
Social Security: The base amount for computing Social Security benefit taxes is $25,000 for single filers and $32,000 for married couples filing jointly, according to Mr. Buchanan of Wolters Kluwer.
Other zingers: The tax impact on married couples may also be affected by limits on mortgage interest deductions, as well as a 3.8% net investment income tax that applies to many high-income investors.
Location: Where you live can also play a role in how married couples are taxed, says Janelle Fritts, a policy analyst with the Tax Foundation in Washington, DC. Many states have marriage tax penalties built into their tax systems, she says. For more information, see her report titled: “Does your state have a marriage penalty?”
Married couples can choose to file jointly or as “married individuals filing separately” from their spouse. Most married couples file a joint return because it is usually more beneficial for tax purposes. Filing separately from your spouse can be beneficial in certain circumstances, even if one spouse has a significantly lower income than the other and has very large medical expense deductions. Filing separately can also be a smart move if you suspect your spouse is a tax cheat and you don’t want to be responsible for that person’s taxes, says Bryan Skarlatos of the law firm Kostelanetz LLP in New York City.
How could a couple owe less due to marriage?
The answer again varies widely and depends on the details of each case. But an example would be a couple where one spouse has much more income than the other, or where one spouse takes home all the income, Buchanan says. He offers this hypothetical example: Suppose one taxpayer has income this year of $170,000 and the other has $30,000. If they are married filing jointly, they would owe about $3,800 less than if they had each remained single, he says.
The bonus can be much higher in other cases, says Mr. DeFilippis. For example, consider a hypothetical case where one person has $200,000 in earned income for this year and the other has zero. The marriage bond would be about $10,550, he says. “Typically, the more disparate the income between the two, the higher the marriage bonus,” he says.
Series I savings bond update: Treasury Series I Savings Bonds, which are government-guaranteed and offer significant tax breaks, still look attractive even though the recently reinstated rate isn’t as high as it used to be. The Treasury recently announced that the initial annualized rate on new Series I savings bonds sold from November of this year through April 30 of next year is 6.89%. I wrote about this topic earlier this year. For more details, see the Treasury website.
Charitable Donation Reminder: Stop procrastinating if you’re thinking of taking advantage of a popular technique known as qualified charitable distribution. Friends have reminded me that it may take longer to execute than you think. In a typical case, an investor age 70 1/2 or older can transfer up to $100,000 a year directly from a traditional IRA to qualified charities without having to include the transfer as income. (Caution: Funds recommended by donors are not considered qualified for this provision.) The transfer counts toward the taxpayer’s required minimum distribution for that year. Make sure the transfer goes through directly to the charity, not the IRA owner, says Eric Smith, an IRS spokesman. The IRS recently published a helpful summary on the subject.
Mr. Herman is a writer in California. He was previously a columnist for The Wall Street Journal’s Tax Report. He sends comments and tax questions to [email protected]
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