A safe bet is that nobody makes a decision to get married based upon the tax consequences. However, a tax effect is certain to arise for the newly married, which can be either small or significant. The most obvious tax alteration caused by marriage is the change in filing status. Recent marriage eliminates the possibility of using a filing status of single. The straight facts from Enrolled Agent training convey that a marriage results in using either the status of married filing jointly or married filing separately.
Married individuals who file separately are confronted by different issues than those who file jointly. In addition, filing jointly may cause either a higher or lower income tax than the combined tax assessments on the two single individuals prior to marriage. Enrolled Agents should understand the basic impact of marriage on a couple’s income tax. Discussions about this will prepare couples for the likely results marriage has on tax returns for the first year together.
As Enrolled Agent study materials clearly state, filing status is determined by whether a person is married on the final day of the year. Therefore, couples that planned their tax withholding and other payments as single people at the start of a year may discover startling outcomes at tax time.
Tax results from getting married are difficult to predict. However, some general factors exist that a tax pro with an EA license can summarize for newlyweds. Simplified examples illustrate the cases of tax differentials caused by marriage. Individuals with similar incomes are most likely to incur higher overall tax when marrying. Alternatively, a taxpayer who marries someone with no income is certain to have lower tax.
The largest surge in tax arises for high-income individuals who marry each other. Their combined incomes force them into higher marginal tax rates. That may trigger unexpected situations for the newly married. They will benefit from descriptions of graduated tax rates delivered by an Enrolled Agent tax expert.
Of course, an economic advantage usually awaits high-income individuals who marry as they experience lower combined living costs by consolidating homes. The opposite effect awaits low-income people with children, who are likely to lose public assistance benefits when marrying.
The new Medicare tax imposes an additional burden for couples earning more than $250,000 per year. This threshold is not simply twice the $200,000 amount for single individuals subject to the tax. For example, two individuals earning $200,000 each don’t owe the new tax. However, they will pay the 0.9 levy on the $150,000 of their combined income that exceeds the $250,000 threshold. At least that $1,350 penalty never increases because they would incur the additional tax on rising income even if they had remained single.
Different outcomes await taxpayers with alternative circumstances. An Enrolled Agent job for a single taxpayer earning $220,000 includes calculation of the new Medicare tax. But, the tax is eliminated when that person marries someone earning less than $30,000. The Medicare tax on high-incomes adds a further layer of complexity to determinations of the tax impact from marriage. Any tax calculation based upon combined income is certain to have either a positive or negative result for the newly married.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.