The tax benefits of marriage may not be a top consideration when someone is deciding whether to get hitched or stay single. Still, married couples can sometimes qualify for extra savings when it comes to their income tax rate and certain credits, exemptions, exclusions, and deductions.
It isn’t all roses and rainbows, however. Couples may also lose some tax breaks when they change their filing status. But with careful planning, spouses may find there are tax benefits to being married vs. staying single.
Here’s a look at some of the tax bonuses (and penalties) couples can expect when they wed.
Tax Benefits of Marriage, Explained
Spouses have two basic options when filing their income tax returns: They can combine all their information on one return with the status of “married filing jointly,” or they can file two returns as “married filing separately.” (Even couples who were married at the very end of the tax year can no longer file as single.)
The decision to file separately can make more sense sometimes, depending on each spouse’s income and other factors. But the IRS says that when it comes to money and marriage, the joint filing status usually has more benefits for couples.
Advantages of filing jointly can include:
Your Tax Bracket as a Couple Could Be Lower
In the past, combining incomes on a joint tax return often bumped one or both spouses into a higher tax bracket with a higher tax rate than when they were single.
Recent tax reform, however, has made this so-called “marriage penalty” less likely. When the Tax Cuts and Jobs Act (TCJA) took effect in 2018, the income levels for joint filers in all but the highest tax brackets were doubled, reducing the chances that married couples would be penalized.
Some high-income couples still may land in a higher bracket after marriage. But with the TCJA’s equalized brackets, more spouses can expect to find themselves in the same or even a lower tax bracket than they had when they were single.
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Federal Estate and Gift Tax Limits Are Higher
Although people generally are referring to higher or lower tax brackets when discussing the pros and cons of filing jointly, marriage also can affect couples who plan to gift assets to their heirs.
Couples who wish to transfer wealth to loved ones during their lifetime or upon their death may be able to give twice as much as single filers without being taxed. Here’s what that looks like for 2022:
• The IRS set the annual gift tax exclusion for individuals at $16,000 per recipient (children, grandchildren, etc.) for 2022. That means this year, married couples can give $32,000 per recipient tax-free without using a portion of their lifetime gift tax exemption.
• The lifetime estate and gift tax exemption for individuals was set at $12.06 million for 2022. So while a single person can protect $12.06 million for 2022 without having to pay federal estate or gift tax, a married couple can shield a total of $24.12 million.
Other Gift and Estate Tax Advantages
Besides the tax advantages mentioned above, marriage also can allow spouses who are both U.S. citizens to transfer or leave unlimited amounts of money to each other without paying taxes. Any assets exceeding the couple’s estate tax exemption won’t be taxed until the surviving spouse dies.
Taxes on Social Security Benefits
Many people aren’t aware that a portion of their Social Security benefits can be taxed if their income is above a certain threshold. This is true whether you’re single or married, but the IRS thresholds are a bit higher (although not doubled) for married couples.
Here’s how it breaks down based on what the IRS refers to as “combined income.” (Your adjustable gross income + nontaxable interest + ½ of your Social Security benefits = your combined income.):
• If you file as single and your combined income is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your Social Security benefits.
• If you’re married filing jointly and your combined income is between $32,000 and $44,000, up to 50% of your Social Security benefits may be taxable.
• If you file as single and your combined income is more than $34,000, up to 85% percent of your benefits may be taxable.
• If you’re married filing jointly and your combined income is more than $44,000, you may have to pay taxes on up to 85% of your Social Security benefits.
• You don’t have to pay any taxes on your benefits if you fall below these thresholds.
If you’re married or expect to marry someday, you may want to keep taxes on Social Security in mind as you and your spouse plan your retirement together.
Earned Income Credit and Other Credits
When you’re married, you must file jointly to qualify for the Earned Income Credit (EIC). You generally can’t file separately and claim the credit. And that can be good news and bad news for couples.
The EIC is meant to help low- to moderate-income workers and families save on their income taxes. To be eligible for the credit, you must have earned income; but there are limits on how much you can earn and still qualify based on family size.
Here are a couple of examples of how marriage can result in a penalty or bonus when it comes to the EIC.
• Penalty: The income thresholds are higher for joint filers than they are for single filers, but they aren’t doubled. If both spouses are working and both earn a moderate income, together they might exceed the limit for their family size before a single filer earning a moderate income would.
• Bonus: On the other hand, if one spouse works and the other doesn’t, as a couple they might qualify for the EIC based on the working spouse’s earned income. A single person who doesn’t have any income can’t take the credit.
Other credits and deductions that can be affected by a change in your filing status include the child and dependent care credit, the student loan payment interest deduction, the savers credit, and the American opportunity credit. Generally, married couples who file separately can’t claim these on a return.
Personal Residence Exclusion
The principal residence exclusion allows homeowners who meet certain criteria to shield all or a portion of the profit they make on the sale of their home from capital gains tax. Single filers can exclude up to $250,000, but couples who are married filing jointly can exclude twice that — up to $500,000.
While those numbers may have seemed generous just a few years ago, with the recent rapid rise in what homes are worth, tax consequences from a home sale may be more likely these days. The $500,000 exclusion married homeowners are allowed still may not be enough to protect their entire profit when they sell a home, but it can give them a little more breathing room than singles can count on.
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IRA for Jobless Spouse
Usually, under IRS rules, you can’t contribute to an individual retirement account (IRA) unless you earn an income in that year. But there’s a work-around that can benefit some married couples who file jointly.
If one spouse earns income and the other does not, and the couple files jointly on their taxes, the spouse who works can contribute to a “spousal IRA” that’s in the name of the spouse who isn’t working.
This allows couples to maximize their retirement savings — even if one spouse takes some time away from work, perhaps to care for their small children or elderly parents. And depending on what works better for your circumstances, you can use a Roth or traditional IRA as a spousal IRA.
The rules regarding annual contributions and tax deductions are the same for spousal IRAs as they are for traditional IRAs. If you have questions, you can ask your financial advisor or tax preparer, or go to the IRS website for information.
You Can Use Your Spouse as a Tax Shelter
If you or your spouse owns a business, you’re both probably hoping it’s a success. But if it isn’t, it could end up being a tax benefit — if you can claim those losses as a write-off on your joint return.
If it looks as though this strategy might be useful — especially in the first year or so of the business — you may want to ensure personal and business transactions stay separate by opening a business bank account. Or you can just keep better track of your income and spending with a free budget app.
Higher Deduction for Charitable Contributions
These days, nearly 9 out of 10 taxpayers take the higher standard deduction put in place by the TCJA — and that means they can’t claim a tax break for charitable contributions on their federal return.
But if you do end up itemizing on your return, being married could help you maximize the tax deduction you get for charitable giving. Although your maximum deduction is limited to a certain percentage of your adjusted gross income (usually no more than 60%), if you file jointly, the deduction is based on your combined AGI. That means you may be able to donate more in a particular year than a single filer.
Couples Can “Shop” for Tax-Friendly Benefits
Unless they’re both with the same company, a working couple may be able to pick and choose from their employers’ different benefits packages to take advantage of certain tax breaks. A couple of those benefit options might include:
Flexible Spending Account (FSA)
If one spouse’s employer offers an FSA, you may be able to use it to pay for qualifying medical, vision, and dental costs for your family, or for qualifying dependent-care programs. The amount you contribute to the account will be deducted from your salary pre-tax, which can help cut your income tax bill.
Health Spending Account (HSA)
If one employer offers a high-deductible health plan (HDHP) and you choose that health insurance option, your family can benefit from opening an HSA to save for future medical expenses.
Contributions to an HSA are tax-deductible, and distributions are tax-free when used for qualified medical expenses. Unlike the use-it-or-lose-it funds in an FSA, you can keep the money in the account as long as you like. And any growth in your HSA from interest and/or investment returns is also tax-free.
Filing One Return Instead of Two
Spouses who file jointly have to worry about completing only one income tax return. And if your financial lives already are intertwined (you do your budgeting as a couple and have a joint a bank account vs. separate accounts), it may be easier to file jointly than to separate everything for two returns.
It also could make it easier to get your return done by the tax deadline — or maybe even early, so you can get your tax refund faster. And if you hire a professional to prepare one return instead of two, it could save you some money.
How the Tax Cuts and Jobs Act Could Affect Future Taxes
The clock may be ticking on several of the tax benefits and penalties married couples can experience under the TCJA (some of which are listed above). Many of its provisions are set to expire at the end of 2025, including changes to:
• Income tax brackets and rates
• Standard deduction
• Personal exemptions
• Limits on deductions for mortgage and home equity loan interest
• Limits on charitable contributions
• Estate and gift tax exemption
If Congress doesn’t act to keep them, these provisions may lapse on Dec. 31, 2025, which could affect married couples’ taxes going forward. Keep this in mind as you do any tax planning for the future.
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Tax Downsides to Marriage To Consider
Besides the potential penalties already mentioned throughout this post, there can be other downsides to marriage when it comes to taxes, including:
• When you sign a joint return, the IRS holds both spouses responsible for the validity of everything that’s on it. Even if one spouse manages the money in your marriage (paying the bills, investing, and doing the taxes), it’s a good idea to go over the return carefully together before you both sign.
• If one spouse defaults on a federal student loan after you marry or owes back child support, your joint refund could be delayed or garnished to pay the debt.
• If you’re a high-earning couple, you might have to pay the net investment income tax and/or the Medicare surtax. The threshold on these taxes is $200,000 for single filers, and only goes up to $250,000 for married couples filing jointly.
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The Takeaway
Marriage can impact just about every aspect of your life — including the taxes you pay. There are tax benefits and penalties to consider as you plan your future and your finances together. Some potential benefits include a lower tax bracket, estate tax advantages, the Earned Income Credit, and the Personal Residence Exemption, among others. But watch out for the net investment income tax and the Medicare surtax. According to the IRS, overall most couples benefit from filing jointly.
Keeping track of your combined spending, saving, and investing can make it easier to manage your money throughout the year, and to work on your taxes when it’s time. And SoFi’s money tracker app can help you do it all in one place — with credit score monitoring, spending breakdowns, financial insights, and more.
FAQ
Is there a tax advantage to marriage?
While every couple’s situation is different, spouses who file jointly may enjoy some advantages when it comes to certain tax exclusions, exemptions, deductions, and credits.
Do you get a bigger refund if you’re married?
If your filing status is married filing jointly and you make the most of the many credits and deductions available to you as a couple, you may see a bigger refund.
Do you pay less taxes if you are married?
You won’t automatically pay less taxes because you’re married. But with careful planning, you may be able to take advantage of your marital status to save money on your income taxes.
Photo credit: iStock/simpson33
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