Marriage has financial sense. If you have a significant person who believes that getting married is more a financial obligation than an advantage, this way of thinking is more common than you think. Many people, largely confused by the long-standing belief that marriages pay more taxes than single people – the marriage penalty – have followed this line of thought as a reason to avoid tying the knot. Does getting married help your taxes?
Penalties and bonuses
The progressive US tax system can turn pairs in two ways. Despite various attempts at reform, there is still a marriage penalty for some couples who earn roughly the same amount and who are forced into higher tax groups when their family’s income increases more or less in marriage. This applies to both high and low income couples.
In turn, couples in which one partner earns all income – or much more than the other – sometimes benefit from the marriage bonus, because the range of people with higher wages falls after marriage and ultimately pay less taxes than if they submitted separately as a singleton. In total, marriage bonuses can amount to 21% of the couple’s income, while marriage penalties can reach up to 12%, according to the Tax Foundation. The elimination of all marriage penalties and bonuses would require a substantial rewriting of the Tax Code, with far-reaching effects. Instead, legislators rely on workarounds for marriage penalty.
Putting together can get more deductions and other tax benefits
For many people, getting married and jointly allows for more deductions.
As an example, suppose you have a business loss for a year and have little or no other income. As a single taxpayer, the tax benefits of losses are negligible. However, if you are married and your spouse has a good income, loss of business helps offset that income based on a shared return. Although we never recommend losing money as a tax strategy, it is nice to get a tax credit if you suffer a business loss. Also, when you apply as one person, other deductions and credits are limited by lower income levels. You can usually deduct up to 50 percent of adjusted gross income for charity. As one person, if you make a significant contribution during the year in which you earn less income, the total deductible amount is lower. However, if you make a joint refund, the income is combined with the income of the spouse. Therefore, the total deductible amount for the same charity contribution is probably higher. This helps you save more on taxes. On the other hand, your income as a single person may also be too high for some tax breaks. Many people often face this problem when they try to get American Opportunity Credit for educational expenditure. In the 2017 tax year, the loan begins to expire when the adjusted gross income reaches USD 80,000 and disappears when the income is USD 90,000 or more. But if you are married by submitting joint applications, these withdrawn numbers will increase to USD 160,000 and USD 180,000.
Gift taxes and wealth planning
Spouses may give each other unlimited cash gifts or other property free from gift taxes. This provision has important implications for estate planning purposes, so be sure to review your property plan again after marriage.
Tax penalty for marriage
A marital penalty occurs when two persons submitting a joint tax return pay more tax than the sum of their individual tax liabilities calculated as if they were filing them as a single taxpayer. One reason for this is that the MFJ’s income tax ranges and standard deduction are not always equal to twice the single income tax range and standard deduction. Under current law, the marriage penalty is partly relaxed because the lower income tax ranges (10%, 12%, 22%, 24% and 32%) and the standard deduction for the MFJ are exactly twice as high as for single people.