A change in marital status can have a significant impact on a couple’s income taxes. Some couples will end up paying more in taxes than when they were single, other couples will pay less, and still others will pay about the same. It all depends on their specific situation.
Before reading this post, you may want to review some previous posts that summarize how federal income taxes work: Basic Income Tax Formula, Basics of Federal Income Taxes.
Marriage causes a change in filing status
The very first question on a federal income tax return asks for the filing status. A filing status is a classification that impacts many different parts of a taxpayer’s return, including: bracket/rate schedule, standard deduction, certain itemized deduction thresholds, etc. Filing status depends on marital status and number of dependents. As soon as a couple gets married, they are no longer allowed to file with the single filing status. They must file with either “married filing jointly” status or “married filing separately” status. A vast majority of married people will file jointly.
Sometimes, getting married makes little difference
As mentioned above, the change in filing status will change the bracket/rate schedule, standard deduction amount, and certain itemized deduction thresholds. There are also some additional taxes and situations, that will briefly be described below, that have different thresholds or limits depending on filing status.
However, in general, the rate schedule and deductions for married filing jointly status are double those of single filing status. Here are the two bracket/rates schedules side-by-side:
You’ll notice that most of the brackets, except the 35% and 37% brackets, are “twice as wide” for married filing jointly status. As such, couples with similar, low-to-moderate incomes will pay the same or similar amounts when they are married as they did when they were single.
Here is an example showing Justin and Kim. Justin makes $80k/year and Kim makes $75k/year. The total of combining their individual returns is practically the same as their return if married filing jointly. The $1 difference here is due to rounding:
You’ll notice that the standard deduction amount for a joint return in 2023 is $27,700, which is double the standard deduction amount for single filing status, $13,850.
Some couples will pay less
The example above with Justin and Kim shows that changing filing status doesn’t change the total tax being paid if each individual has a similar income. However, when there are large differences in incomes, there can be meaningful tax savings. The reason for this is that some of the higher earner’s income is being “pushed down” into a lower bracket.
Here is an example showing John and Suzie. John makes $300k/year and Suzie makes $55k/year:
The combined tax paid on their individual returns is $76,765, whereas the tax paid on their joint return is only $65,252. This difference is $11,413 of 14.87% less than the tax paid on their single returns.
This is an overly simplified example, and it does not include some other taxes for high income earners. However, it illustrates the point that in the right circumstances, marriage can result in tax savings.
Other couples will pay more
The top brackets for married filing jointly status are not double the top brackets for single filing status. So, for a couple where both individuals have very high incomes, they will pay more jointly. Here is an example for Rick, who makes $600k/year and Mary, who makes $700k/year:
The tax due when filing jointly is $9,249 more than the combined total of their individual returns. Again, this is an overly simplified example. Most people with incomes this high would be itemizing deductions.
Other factors
There are other types of taxes, as well as deductions and credits that will change with a change in filing status. The issue typically arises when the phase-outs or limits for filing jointly are not double those for the single filing status. Here are some examples (this list is not all-inclusive):
Net Investment Income Tax. The Net Investment Income Tax is a tax on investment income that only applies if modified adjusted gross income (modified AGI) is above certain amounts. For the single filing status, the tax applies if modified AGI is above $200k. For married filing jointly status, the tax applies if modified AGI is above $250k. So for a couple where both individuals have modified AGI of about $200k, they could avoid the Net Investment Income Tax when they are single, but after marriage they would definitely be over the threshold for this tax.
Additional Medicare Tax. The Additional Medicare Tax is an additional tax on wages, if income exceeds certain thresholds. The thresholds are $200k for single filing status, but only $250k for married filing jointly status.
Earned Income Tax Credit. Low income taxpayers can benefit from the Earned Income Tax Credit. The amount of the credit changes depending on filing status and number of dependents. The credit is limited to those who have below a certain adjusted gross income. The limit for people with no children is $17,640 for single filing status and $24,210 for married filing jointly. Marriage can reduce the amount of this credit in certain circumstances.
Itemized Deduction For State And Local Taxes. The itemized deduction for state and local taxes is capped at $10,000. This is the same for both single filing status and married filing jointly status.
MAGI Contribution And Deduction Limits For IRAs. MAGI limits for Roth IRA contributions and deduction limits for Traditional IRA contributions are less than double for married filing jointly, as compared to single filing status.
Every situation is different
Our tax system is complicated, so it is impossible to say succinctly how marriage will impact a couple’s taxes, without analyzing their unique situation. Certain situations and factors will also counteract each other. Regardless, the post starts to explain some of the ways in which marriage will impact a couple’s taxes.
There are also additional considerations that have not been described here, such as how marriage will impact state taxes and also how marriage impacts the tax situation of those who already have children (then, head of household filing status is being compared to married filing jointly status). We may try to address some of these topics in future posts or series.
If you have any comments, questions, or ideas for future posts, please let me know
I hope you found this post helpful and educational. If you have any comments, questions, or ideas for future posts, please let me know. You can reach me directly via email at crawford@ulmerfinancial.com.
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