Summertime is the traditional season for weddings. If you’re planning a wedding this summer, you should take a look at how marriage could affect your tax bill.
Marriage: Tax Penalty or Bonus?
1. Tax Penalty.
- The so-called “marriage penalty,” is the term applied to the amount of additional taxes some couples pay after they marry.
- If you and your spouse earn similar amounts of income, you may pay more tax as a married couple than each of you would as single individuals because your joint income pushes you into a higher tax bracket.
- Other provisions that can create a marriage penalty include phase-outs of personal exemptions and itemized deductions.
- The new Medicare taxes can create a penalty because the threshold for applying them is $200,000 for singles and $250,000 for couples filing jointly.
- If one spouse has a retirement plan at work and the other contributes to an IRA, you may not be able to deduct the full amount of your IRA contributions after you’re married.
2. Tax Benefit.
- The tax code can also create “marriage bonuses” which are situations when tax liability can decrease after you marry.
- For example, if only one spouse has income, the wider brackets for marrieds at certain tax rates will give the couple a lower tax bill than paying as a single on the same amount of income.
- Other marriage bonuses: A wage-earning spouse can make an additional IRA contribution for a nonworking spouse, and married homeowners get double the $250,000 gain exclusion when they sell a home.
- What to do: Analyze the benefits of potential current income tax savings against your future goals.
- For example, plans for distributing corporate income or selling the business have tax consequences that will affect your decision.