Important Note: If you're legally married as of December 31, you're considered married for the entire year for tax purposes. Even if you got married that day. So keep this in mind throughout the article below.
Married Filing Jointly Vs. Married Filing Separately
There are two ways married folks can file:
- Married Filing Jointly - which means both of you report all your income and tax info in single tax return
- Married Filing Separately - you each file a separate tax returns and split up any joint income
In most cases, married filing jointly will give you a better tax result overall, especially if there's a difference between the incomes in your marriage (see more on this in the "Tax Brackets" section below).
Reasons People File Separately
Sometimes, married filing separately can result in preferable outcomes. Here are a couple of common reasons we encounter:
- For people on income-based student loan repayments, joint income may increase your loan payments
- If one spouse has prior tax liens/debts or there are concerns about the way one spouse is representing themselves on their tax return, you may want to keep things separate to avoid shared legal responsibility (see "Tax Liens" section below)
- You have separated from your spouse but are not yet divorced
Also, sometimes, even if there's a financial cost, some couples just prefer to keep their finances totally separate. We can help you figure out what the cost might be if you're in this situation so you can assess what makes sense for you.
Downsides to Filing Separately
- You can't claim the Earned Income Tax Credit
- You can't claim education credits
- You can't deduct student loan interest.
- You can't claim the Child and Dependent Care Credit
- Your deduction for capital losses is limited to $1,500 (instead of $3,000 on a joint return).
- If one spouse itemizes deductions, both must itemize — even if the standard deduction would result in a lower tax bill for the other spouse. You can't mix and match.
- In many cases, you will not be able to contribute to a ROTH IRA
- You may not longer be eligible for health insurance subsidies (see section on "Health Insurance" below)
Tax Brackets for Joint Filers
When you file jointly, your combined income will determine what tax bracket you land in.
Say your taxable income is $140,000 while your spouse's taxable income is $30,000. Before getting married, you were in the 24% tax bracket, while your spouse was in the 12% bracket. But now with your combined taxable income of $190,000, you're both in the 22% tax bracket. (This is a bit of a generalization, as the tax system is progressive, meaning not all of that $170,000 is taxed at 22%. The first $19,900 is taxed at 10%. Then $19,901 to $81,050 is taxed at 12%, and finally the last $90K or so gets taxed at 22%.)
Deductions and Credits
Some deductions and credits are means-tested (i.e. based on your income), so combining your income after marriage can change your eligibility.
For example, for those with no children, the earned income tax credit is available for single filers with an adjusted gross income up to $15,980 in 2021. But for childless married joint filers the limit is $27,830. If you were previously eligible as a single person but get married and combine your income, it's possible you won't be able to claim this credit any more.
Likewise, if you are a single filer without access to a workplace retirement plan, you can make deductible contributions to a traditional IRA regardless of how much you earn. But if you get married and your spouse has access to a workplace plan, income limits will apply and potentially curb your ability to claim this deduction.
Losing eligibility for deductions and credits can sometimes translate into a bigger tax bill once you've tied the knot.
Marriage Penalty or Marriage Bonus?
Maybe you've heard of the so-called marriage tax penalty, a quirk in the tax law that sometimes causes married couples to pay more income tax than they would've had they remained single. Marriage penalties occur when the tax brackets, standard deductions, and other aspects of the tax code available to married couples don't double those available to single taxpayers.
Over the years, Congress has taken steps to reduce the effects of the marriage penalty. For example, when recent tax reform revised the tax brackets, it made the thresholds for six of the seven tax brackets for married couples filing joint returns exactly double those available to single filers. The highest tax bracket is the exception:
- For the 2020 tax year, single people pay a rate of 37% on taxable income over $518,400.
- For married couples filing jointly, that threshold is just $622,051 — far from double that available to single taxpayers. That's a significant marriage penalty.
In some cases, married couples actually get a marriage bonus. This means they pay less income tax as a married couple than they would if they stayed single.
Will your wedding day lead to a marriage penalty or a marriage bonus? That depends on a lot of factors. But, in general:
- The more unequal two spouses' incomes, the more likely that combining those incomes on a joint return will pull some of the higher earner's income into a lower bracket. That's when the marriage bonus occurs.
- When two high-earning spouses have relatively equal incomes, the odds of getting hit with the marriage penalty go up.
A Word about Tax Liens
Many married couples file separately because of past-due prior debt, which could be deducted from any tax refund they're due. This includes delinquent child support, past-due student loan repayments, or an unpaid tax liability one spouse incurred before getting married.
The good news: Filing separately because of prior tax liens may not be necessary. The couple can file IRS Form 8379, Injured Spouse Allocation each year with their married-filing-jointly tax return until the spouse with liens gets caught up on their debt (we can help with this).
This keeps the spouse who doesn't have the debt from being penalized for being on the return and losing out on their share of any tax refund. Plus, by filing jointly, the couple can still declare deductions and credits not available to those filing separately.
And, A Word about Health Insurance
While this isn't a tax issue, per se, we want to encourage all couples out there thinking about getting married to make sure you understand how married and your filing status could change your eligibility for health insurance.
- The plans you are eligible for individually are often not the same as those you are eligible for as a couple, particularly if one spouse is on a government-provided or government-subsidized health insurance plan prior to the marriage.
- If your filing status is married filing separately, in general, you will not be eligible for any of the subsidized marketplace plans
This is a big issue that is not very romantic or fun, but given the state of healthcare in the US, it is really important that you take the time to understand how marriage will impact your access to healthcare.
Getting Your Taxes Done
That was a lot! If you're married, or got married this year, when you sign up for your appointment, make sure to let us know, and you'll likely need to have your spouse add all their info to your account. We're also able to run the numbers each year to see if it's better to file jointly or separately, you don't have to do the math on your own.
Get started on your taxes today by signing up for an account with Brass Taxes.