Marriage and Taxes: What You Need to Know
Most couples will owe less in federal taxes by filing jointly, but sometimes it pays to go it alone.
Wedding bells are ringing again in 2021 as engaged couples rush to tie the knot in front of family and friends without the fear of causing a COVID-19 super-spreader event. If you find yourself newlywed in 2021, you’ll need to get up to speed on the rules for filing your taxes as a married couple.
The U.S. has a progressive tax system, which means that as you earn more, you pay a larger percentage of your income in taxes. But the amount you’ll owe could also be affected by your filing status. The four main categories are single, married filing jointly, married filing separately and head of household.
Although a rising number of couples choose to keep their finances separate nowadays, filing jointly will likely place you in a lower tax bracket, with a lower tax rate, says Lisa Greene-Lewis, tax expert at TurboTax. For many years, married couples lamented what became known as the marriage penalty, which was triggered when their combined salaries pushed them into a higher tax bracket than they’d fall into as singles. But the tax overhaul signed into law in 2017 made the tax bill for married couples filing jointly closer to the combined total they would have owed as single taxpayers. And if taxpaying spouses have substantially different salaries, the couple may enjoy a marriage bonus—paying less in overall taxes than they would have owed as single taxpayers.
Some couples with similar salaries still pay a marriage penalty, but it’s limited primarily to couples whose combined incomes place them in the top tax bracket.
Reasons to file separately. However, the marriage penalty is alive and well in several states. So before you tie the knot or plan on moving to a new state, check to see whether you’re at risk of paying more in state income taxes as a married couple. Fifteen states have a marriage penalty built into their bracket structure. Seven states (Arkansas, Delaware, Iowa, Mississippi, Missouri, Montana, and West Virginia) and the District of Columbia offset the marriage penalty in their bracket structure by allowing married taxpayers to file separately, even if they file jointly on their federal tax return.
Even if it results in a higher tax bill, consider filing separately if you don’t feel comfortable sharing a tax liability with your spouse. If one spouse is behind on taxes, has committed tax fraud, or owes the IRS money, the IRS can look to either spouse to collect, says Andy Phillips, a director at H&R Block’s Tax Institute.
Likewise, if you or your spouse incurred high medical expenses, filing separately could give you a lower tax bill. Because you can only deduct expenses that exceed 7.5% of your adjusted gross income, if one spouse has lower income and high medical costs, that spouse may be able to deduct those expenses by filing separately.
However, there are certain perks available only to couples who file jointly. If you’re married filing separately, the income phaseout for the child tax credit is much lower than it would be if you filed jointly. Plus, if you file separately, you can’t contribute to a Roth IRA unless your modified AGI is less than $10,000.
Ultimately, for the vast majority of married couples, filing jointly pays off. And even if you and your betrothed want to delay your nuptials until New Year’s Eve, you can still lock in those 2021 tax benefits when you file next year.