Is There a Financial Benefit to Getting Married?
Marriage comes with many benefits, both emotional and financial. But when planning a wedding, the tax benefits (and drawbacks) of your new union may not be top of mind. The reality is that there are both pros and cons to consider when tying the knot in terms of taxes and personal finances. Here are a few to keep in mind.
Pro: Double Deduction When Filing Taxes
Married couples filing jointly can claim double the standard deduction on their taxes. For 2019, the standard deduction for married filing jointly is $24,400, up $400 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction is $12,200.
Keep in mind that some couples may experience a marriage penalty if they pay more income tax filing as a married couple than they would if they filed as individuals. This typically affects couples with similar incomes.
Pro: Home Sale Exclusion
Selling a house together? Married couples derive a tax benefit here too: They can exclude up to $500,000 in gains from taxation when the house is sold. This applies if the owners lived in the property for at least two of the previous five years. Single filers or married couples who are filing separately can only exclude $250,000 of gains.
Pro: Child Tax Credit Changes
Filing jointly as a married couple leads to tax benefits for any current (or future) children. Joint filers can earn twice the adjusted gross income of single filers before the child tax credit begins to phase out. For example, a married couple can make $400,000 in adjusted gross income before losing the ability to claim the full child tax credit, whereas a single person could only make $200,000 before losing access to the full credit.
Pro: IRA Benefits
Even if only one spouse is employed, it’s possible for both individuals to reap the tax benefits of a traditional IRA account. The income-earning spouse can open an IRA in their partner’s name and make tax-deductible contributions in the form of spousal contributions.
Pro: Tax-Free Death Inheritance
Under federal tax law, any money left to a spouse who is an American citizen is not taxable at death. Therefore, people can leave unlimited amounts of money to their spouses. Additionally, if your spouse had life insurance, you typically will not have to pay taxes on a life insurance payout as it is not considered taxable income.
Con: Tax Bracket Changes
There are many benefits to becoming a dual-income household, like more money to cover living expenses and a potential second income to fall back on in the event one partner loses a job. But the increased earnings could also mean a higher tax bill. It could throw you into a higher tax bracket and make your tax liability higher than if you remained single.
While most couples score a bigger tax break by filing jointly, there are reasons to file separately, such as separating tax liabilities, scoring a significant itemized deduction that one spouse can’t take, or managing debts subject to refund seizure or income-based payments like student loans.
Con: Combined Debt
When you’re married, their debt is now your debt, even if you keep your money separate. So if your spouse is less responsible with credit card spending, you could be on the hook.
Conclusion
Marriage offers a range of financial benefits, from tax breaks to IRA advantages, but it’s not without its challenges, such as potential tax bracket changes and shared debts. Couples should do their research to determine which tax filing option is best for them and consider the long-term financial implications of getting married.
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Description: A married couple discussing their finances together at a table.
