Did you get married last year? Congrats! While you’re currently living in marital bliss, catching up on those thank you notes from wedding gifts, or getting back into the swing of things after your honeymoon, there are some important tax decisions you and your other half need to make.
Filing for the first time after getting married married can be tricky – you need to make sure you make the right decisions so that you pay the lowest amount of taxes. Here are some things to think about before you file as a married couple.
Choose a Filing Status
If you are legally married, you are no longer eligible to file as single. You’ve got two options: Married Filing Jointly or Married Filing Separately. Choosing a filing status is going to depend on you and your spouse’s current tax situation.
There is a thing called the “Marriage Penalty”. It happens when your incomes combined push you into a higher tax bracket and you end up paying more taxes than you would if you were single. On the other hand, you could end up paying less taxes if one of you makes less than the other and your combined income puts you into a lower tax bracket.
Take a look at the tax brackets for both filing statuses.
Married Filing Jointly
Married Filing Separately
Now take a look at what your combined income will be versus what each of you will pay in taxes if you choose to file separately.
Another thing to consider when choosing a filing status is your deductions. If you and your spouse have a lot of deductions, it might be more beneficial to file separately. Eligibility to deduct major expenses like medical bills, employee business expenses, and losses depends on whether your expenses exceed a set percentage of your income. By filing separately and thus separating your salaries, you may be able to meet the income requirements.
- Medical expenses must exceed 10% of your salary in order to deduct.
- Employee business expenses must exceed 2% of your salary in order to deduct.
Other reasons to file separately would be to protect one of your returns from tax debts through defaulted student loans. If one of you has defaulted on loan payments and you fear the government will collect from your tax refund, you should file separately.
You may want to file jointly if you can take advantage of any of these tax credits and deductions. You cannot claim any of these credits and deductions if you file separately.
- Interest on student loans
- Child and dependent care credit
- Earned income tax credit
- Exclusions for savings bond income used for education
- Education credits
- Credit for adoption expenses
- Credit for the elderly or disabled.
Itemize or Take the Standard Deduction
Once you’ve decided how you will file, you will need to decide whether to take the standard deduction or to itemize. The rule of thumb for this is tallying up your possible deductions to determine, which will provide the greater tax break: deductions from itemizing or the standard deduction.
Here are the standard deductions for 2015:
- Married Filing Jointly: $12,600
- Married Filing Separately: $6,300
Note: If you are filing separately, you both have to make the same decision on itemizing or taking the standard deduction. You can’t mix and match by having one take the standard deduction and the other itemize.
Check Your Withholding
Now that you are married, you may need to adjust your federal and state withholding from your paychecks. What you want to avoid is having too much or too little taxes taken out of your regular paychecks. Too much taken out will result in a bigger refund, but you will also make less money during the year. Too little taken out could result in a tax bill when you file your tax return.
Check out the IRS Withholding calculator to see if you need to make adjustments now that you’re married.
Same Sex Marriages
Now that same sex marriage is legal in the state of Virginia, same-sex marriages are subject to the same tax rules. If you are legally married, you must file using Married Filing Jointly or Married Filing Separately. In the eyes of the law the same tax rules apply here.
Premium Tax Credit
Finally, if either of you receive premium tax credits for health insurance purchased from the federal Marketplace, you will need to report your marriage to the Marketplace. This will allow them to make adjustments on your advanced payments if necessary.
There’s quite a bit to think about tax wise now that you’re married – this is just the tip of the iceberg! Come see the experts at Peoples Tax. We’ll help you choose the right filing strategy, and discuss tax planning options with you for the future.