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How Does Marriage Affect My Taxes?

First comes love, then comes marriage, then comes…the reality that your taxes have completely changed. How romantic, right?! Getting married is a big step in your life with lots of changes – could be a name change, a new social security card, or a new address.. But it definitely brings a new tax filing status. Marriage can affect your taxes in many ways. Of course, everyone’s situation is different, however there are some tax options you’re entitled to that you weren’t as a single filer that help you pay less in taxes. If you’re looking for answers about how marriage affects your taxes from a financial perspective, this post has got you covered.



POST-MARRIAGE TO DO LIST

As if planning your wedding didn’t come with enough tasks, there are still a few things to do after you say “I do.”

  • If you choose to change your last name, you’ll handle that with Social Security. The IRS updates its records based on information provided by Social Security so that name change must be completed with them before you can use it on your tax return without causing a mismatch error on the IRS’ side.

  • Updates to your W-4 tax form to reflect a change in marital status.

  • Determine your filing status: Married Filing Jointly (MFJ) or Married Filing Separately (MFS)

FILING STATUS

It’s important to note that if you're legally married as of December 31 of a given tax year, you are considered to have been married for the full year.


That’s right… even if you get married on New Year’s Eve (Dec 31st), you’re considered Married for the entire tax year.


This gives you two options when filing your taxes - Married Filing Jointly or Married Filing Separately.


With the Married Filing Jointly status, you will include both you and your spouse's taxable income, exemptions, deductions, and credits on one tax return. Even if you or your spouse had no income or deductions, you can still file a joint return.


With the Married Filing Separately status, you each report your own income, exemptions, deductions, and credits on two separate tax returns. Even if only one of you had income, you can still file a separate return. I’ll let you in on a little secret… filing separately status rarely works to lower your tax bill, but there could be reasons why you choose to elect this status. Your accountant can help you make this decision.


Filing jointly comes with some tax benefits for married couples including:

  • More favorable tax rates.

  • You may be able to claim education tax credits if you were a student.

  • You may be able to deduct student loan interest. (Student loan interest is not allowed when MFS, but it’s also limited by income, so if combined income is too high, the student loan interest deduction can be limited or disallowed).

  • You can claim deductions for children and childcare expenses. Child tax credit and credit for other dependents are both permitted on an MFS tax return. Child and dependent care credit is generally not permitted on an MFS return.

  • You can file for the Earned Income Tax Credit (if you qualify).

WHAT ABOUT BUYING OR SELLING A HOUSE?

Lots of newlyweds dream of buying a house that they’ll turn into a home with their spouse. Once you’re married, your combined income can get you approved for a higher mortgage to buy a house. When you do buy a house, the interest you pay on your mortgage is deductible on your tax return as an itemized deduction.


If you enter into your marriage and already own a home and decide to sell,

the amount of gain that can be excluded from income doubles from $250,000 to $500,000. If only one of you owned the home before the marriage, the $500,000 exclusion applies only if you both lived in the home as your main home for at least two years.


MARRIAGE BONUS VS. MARRIAGE PENALTY

The true bonus of marriage is getting to spend a lifetime with your spouse. But a little tax break makes for a nice bonus too. A marriage bonus is when a household's overall tax bill decreases due to a couple marrying and filing taxes jointly.


A marriage tax penalty occurs when a married couple incurs a higher tax rate when filing jointly than they would if they were filing separately. The reason for this penalty is that state and federal tax brackets don't always double the single-income rates for married couples filing jointly.


Below are the current tax rates for married couples filing for 2023. (Remember, if you got married anytime between January 1, 2023 and December 31, 2023 you now have two filing options - Married Filing Jointly or Married Filing Separately).


NJ 2022 Tax Bracket (for taxes due April 2023 or October 2023 with an extension)

2022 Federal Tax Bracket



Not sure which filing status to choose this tax season with your spouse? Consult with the experts at ASE Group to discuss options for lowering your tax liability.



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