7 Tax Benefits of Saying 'I Do' in the US

There are various compelling reasons to enter into marriage, with genuine affection and compatibility being among the most important. It's widely recognized that the decision to wed should not be motivated purely by the desire to obtain tax benefits from the Internal Revenue Service. Nonetheless, the tax regulations do offer a handful of perks to couples who decide to tie the knot.

Below are seven tax benefits of marriage, along with some advice on how to make your tax return a little more pleasant.

7 Tax Benefits of Marriage

1.  Your Tax Bracket Could Be Lower Together

Filing a joint tax return with your spouse can lower your tax burden in several ways. First, it can move you into a lower tax bracket, which means you pay less in taxes overall. This is because the more money you make, the higher your tax bracket. When you combine your incomes, you may end up in a lower bracket than either one of you would be in alone. Secondly, filing jointly can result in a larger standard deduction and more tax credits. The total of your standard deductions when filing jointly is much higher than it would be when filing separately. This means that you can deduct more of your income from your taxes than you would if you filed separately. Also, you and your spouse may be able to claim more tax credits when filing jointly, such as the Earned Income Credit, the Child Tax Credit, and the American Opportunity Credit.

Taxpayers have voiced grievances regarding the marriage penalty for several years, where couples with comparable earnings were placed in a higher tax bracket when filing jointly than they would have been if they filed separately. Congress has acted to alleviate this penalty by bringing the tax bill for married couples who file jointly closer to the combined amount they would have owed as unmarried taxpayers. While a marriage penalty may still exist, depending on the income levels, it can be minimized if the spouses have significant income disparities. The spouse with a lower income can lower the higher-earning spouse's tax bracket, resulting in a reduction of their total taxes.

Filing jointly can also save you money on taxes related to Social Security. When both spouses have earned income, they can each earn up to half of the other person's Social Security income. This can result in a lower tax burden due to the lower marginal tax rate on this type of income.

2.  Your Spouse May Be a Tax Shelter

It's not recommended to search for a partner solely because they have a failing business, but it's important to recognize that the negative financial situation of one spouse can benefit both partners. For example, the spouse who is experiencing financial losses, such as through a business venture, may be unable to use certain deductions, including those related to homeownership. However, the spouse who is earning income may be able to utilize these unused tax deductions and claim the other spouse's losses as a tax write-off when filing a joint return.

When filing joint tax returns, married couples can benefit from the “marriage penalty” and “marriage bonus”, which are both based on the combined income of both spouses. If both spouses have similar incomes, they will benefit from the marriage bonus, which means they will pay less taxes than they would if they were filing separately. On the other hand, if one spouse has significantly higher income than the other, they may benefit from the marriage penalty, which means they will pay more taxes than if they were filing separately. The spouse with the lower income can be seen as a tax shelter for the spouse with the higher income, because it can reduce the total amount of taxes paid when filing jointly.

3.  Jobless Spouse Can Have an IRA 

A jobless spouse may be able to get IRA benefits even when filing jointly if the working spouse contributes to a spousal IRA. Individuals who are unmarried and not employed are generally ineligible to contribute to an individual retirement account (IRA). However, married individuals without paid work may make contributions to an IRA utilizing their combined income.

Qualified couples filing jointly have the option of contributing to two separate IRA accounts, one for each spouse, which can result in significant tax benefits. This is an IRA account that the working spouse contributes to with pre-tax dollars, which is then split between the two spouses.

The jobless spouse may then be able to claim the tax deduction for the contributions to the spousal IRA, even if they are not the ones making the contributions. Furthermore, the income threshold at which IRA benefits phase out is significantly higher for married couples compared to single individuals. Even if a couple is not eligible for a tax-deductible IRA contribution due to income limits, both spouses may still be able to make non-deductible IRA contributions or contribute to a Roth IRA.

4.  Couples May "Benefit-shop"

When both partners have benefit packages from their employers, they may choose to combine the most advantageous aspects of each plan. Since benefit offerings often differ between spouses, a strategic selection of benefits from two plans can potentially increase tax savings for the couple. For instance, a couple with dependents may benefit from utilizing one spouse's dependent care flexible spending account (FSA), which can directly reduce their taxable income.

5.  Higher Charitable Contribution Deductions

One way for a couple to get greater charitable contribution deductions is to combine their donations and claim them on a joint return. This allows for a larger deduction amount than would be available on separate returns. Couples can donate assets, such as stocks and mutual funds, to charity. Doing so allows the couple to deduct the full fair-market value of the assets, as well as avoiding capital gains taxes that would be due on the assets if sold. Also, couples can look into donor-advised funds, which allow couples to make a lump-sum donation to a charity and receive the associated tax deduction, while spreading out the disbursement of the funds to charities over time.

Individuals are subject to a cap on the amount of charitable donations they can deduct annually, typically limited to no more than 50% of their income. However, having a spouse can increase this limit. If one spouse's income does not exceed twice the amount of their charitable donations in a given year, the excess contributions may be carried over to the following year. Nevertheless, couples who file jointly can take advantage of both spouses' incomes when deducting charitable donations, potentially resulting in a higher deduction amount in the current year.

6.  Marriage Can Protect Your Estate

Marriage can protect an estate by allowing a surviving spouse to take advantage of the unlimited marital deduction, which eliminates estate taxes on assets transferred between spouses at death. This means that property and other assets can be passed on to the surviving spouse without being subject to estate tax. Additionally, a surviving spouse can benefit from the portability of a deceased spouse’s unused estate tax exclusion, which allows the surviving spouse to use the deceased spouse’s exemption from estate tax in addition to their own.

It can provide a means for affluent individuals to safeguard their assets upon passing. According to federal tax laws, an unlimited amount of money may be passed on to a surviving spouse without incurring estate tax, thereby protecting the deceased's estate from taxation until the surviving spouse passes away.

7.  Filing Can Take Less Time and Expense

The advantages of joint tax filing are straightforward: when a couple files a single tax return, it is typically faster and less expensive to prepare than two separate returns, especially for the spouse who is not responsible for completing the tax return.

Tax Downsides to Marriage

Marriage offers certain tax benefits, but there are also some potential drawbacks to consider. These should not discourage you from getting married, but rather be viewed as additional considerations.

When you file a joint tax return, you become equally responsible for all the figures on it. This means that if your spouse provides inaccurate information, you are liable for any resulting consequences. However, you are not responsible for any of your spouse's errors or omissions that occurred before you were married, or if you can prove you had no knowledge of them.

Joint filing can also make it more difficult to claim deductions. This is because some deductions, such as the student loan interest deduction and the medical expense deduction, are limited to a certain percentage of your adjusted gross income (AGI), and filing jointly can push the couple's combined income over the limit for eligibility. Additionally, if one spouse itemizes deductions, the other spouse must also itemize in order to take advantage of the deductions.

Combining incomes might make it more difficult to meet the higher minimum percentage of income required to deduct medical expenses (which in 2022 must exceed 7.5% of Adjusted Gross Income) unless you or your spouse have significant healthcare costs. Also, if a spouse has an outstanding loan or child support debt, any tax refund may be delayed or withheld.

By filing jointly, couples can benefit from a higher standard deduction, access to more tax credits and deductions, and in some cases, a lower overall tax rate. Furthermore, filing jointly generally simplifies the filing process, making it easier to get all the necessary information together and submit a comprehensive return. Couples can often get a higher tax payout when filing jointly, as they would be eligible for larger credits and deductions than if they filed separately. With these things in mind, you are better equipped to manage your finances and taxes better.

__

This article is for informational purposes only and does not constitute legal, financial, or tax advice. Tax laws are complex and subject to change, and individual circumstances vary. We recommend consulting with a qualified tax professional or financial advisor to fully understand how these benefits may apply to your specific situation.