Did You Get Married this Summer or Plan to Marry This Year?

Embarking on the journey of marriage is a life changing occasion that marks a momentous milestone in one’s life. Amidst the excitement and challenges of planning a wedding and envisioning a shared future with your partner, it is easy to overlook the potential impact of marriage on your tax obligations. 

It is important to consider how getting married may lead to either tax benefits known as marriage tax bonuses or increased tax liabilities referred to as marriage tax penalties. These terms illustrate how marrying can influence a couple’s overall tax situation.

Upon entering matrimony or marriage, your tax circumstances transform. The tax filing options available for the whole year are contingent upon your marital status on December 31. State regulations dictate the official recognition of your marriage. If you find yourself married as the year concludes, you are presented with two choices for your tax filing status.

• Married Tax Filing Jointly: Filing Taxes jointly together with your new spouse
• Married Tax Filing Separately: Filing Taxes separate from your new spouse 

Various Tax Filing Responsibility for the Couple

Submitting taxes together is a common choice for many couples due to its convenience and potential financial advantages. Opting for joint filing can open up opportunities for various tax deductions and credits that may not be available otherwise.

In the event that one spouse has outstanding taxes owed, either to federal or state entities, or if there are other outstanding debts such as past-due child support or defaulted student loans, the IRS could withhold your joint tax refund to settle these individual liabilities. Furthermore, when filing jointly, taxpayers take on “joint and several liability,” as elaborated on below.

What is Joint and Several Tax Liability?

When determining your tax filing strategy, it’s important to understand various terms that may impact your decision. Take into consideration the potential joint liability that may arise from filing jointly with your newlywed partner.

In situations involving divorce decrees, the IRS has the authority to impose joint and several liability on you, regardless of any agreement stating that your ex-spouse will take on the responsibility for payments owed on joint tax returns from before.

In the event that you choose to file a joint tax return, you will typically share the responsibility for any federal income tax discrepancies, interest, or penalties resulting from your spouse’s inadvertent tax mistakes or intentional tax violations. However, if you opt for separate filings, you will not be held accountable for any federal tax obligations owed by your spouse.

The Types of Marriage Tax Relief are

First one is Innocent Spouse. In the event that you are able to demonstrate your lack of awareness regarding your spouse’s tax shortcomings, absence of any basis for knowledge, and non-receipt of personal gains, you are eligible to submit a plea for exemption from the joint-and-several-liability principle pursuant to the innocent spouse regulations. Other relief options are Separation of liability; and Equitable relief.

Each type of relief has different requirements.

Considering the implications of past financial obligations of one’s partner, choosing to file taxes separately can appear to be a prudent choice. However, this decision may come with a drawback wherein certain tax benefits and deductions could be forfeited. In particular, claiming the credit for expenses related to child and dependent care may be restricted in most scenarios.

Furthermore, eligibility for the Earned Income Tax Credit (EITC) cannot be assumed. To obtain details on how your tax filing status impacts the various tax benefits available, consult IRS Publication 501, which covers Dependents, Standard Deduction, and Filing Information.

In the end, the decision on which filing status to choose lies in your hands as a couple. When getting married, there are additional factors to think about concerning tax filing. Here are some important considerations and steps to take regarding tax matters as you enter into marriage:

SSN: Social Security Number

In the event of a change in your last name or if both partners decide to hyphenate their last names after tying the knot, it is essential to inform the Social Security Administration (SSA) about the update.

In the event that a recently married couple submits a federal income tax return under their updated last names without informing the SSA beforehand, it may result in the IRS encountering difficulties in linking the new name with the SSN in their database. Consequently, the IRS might reject or send back the tax return for necessary revisions. This situation could potentially lead to delays in receiving any expected refunds.

Change of Address

Promptly inform the IRS of your change in address to guarantee the delivery of any tax refunds or correspondence to your new location. It is crucial to update your information to ensure that IRS communications are directed to the correct address, regardless of the tax year in question. Make sure to keep your address current to avoid any delays in receiving important IRS notifications.

Should you need to update your address for federal income tax purposes, there are a couple of options available to you. One way is to make the change when you file your tax return. Alternatively, if you’ve already filed your return, you can complete and submit IRS Form 8822, which is specifically designed for changing your address.

Healthcare Coverage

In the world of tax credits, alterations in income levels or family sizes are commonly referred to as ‘circumstantial adjustments’. When encountering a change in circumstances, such as marriage, while receiving advance payments of the Premium Tax Credit, it is crucial to promptly inform your Marketplace. This information directly impacts the quantity of advanced payments you qualify for and the overall credit accessible for your tax return.

Adopted Children

Upon marrying and adopting your spouse’s children, it is important to ensure that each child has their own Social Security Number (SSN) for any tax benefits claimed on a federal income tax return. To obtain an SSN for the child, you can visit the Social Security Administration website.

Community Property States

In states with community property laws, individuals filing taxes as Married Filing Separately may be required to distribute income between themselves and their spouses. Understanding the regulations can be complex, so it’s advisable to consult IRS Publication 555, Community Property, for guidance on how to handle this scenario when filing your federal tax return.

Home Exclusion Sales

In the event that both partners come into a marriage with individual homes and decide to sell one or both properties, there exists the possibility for each spouse to qualify for a $250,000 gain exclusion on the sale of their respective homes. Meeting the necessary ownership and residency criteria is essential for claiming this benefit. Remember that for married couples filing jointly, the exclusion amount increases to $500,000. Detailed information on this topic can be found in IRS Publication 523, titled Selling Your Home.

Retirement Accounts

If you recently tied the knot, it’s a good idea to reassess your retirement strategies to ensure you are optimizing your savings for the future. Take a moment to review your retirement plans and consider adjustments that could enhance your retirement funds. You can also explore the impact of significant life events on retirement planning by consulting resources like IRS Retirement Topics – IRA Contribution Limits and Retirement Topics – Contribution Limits. Don’t forget to update your plan beneficiaries as necessary.

Navigating the rules surrounding filing status can be intricate, as they vary depending on your individual tax circumstances. Should you need guidance on determining the optimal marriage tax filing status, consider exploring resources available on the IRS website or seeking advice from a dedicated Tax Professional from PriorTax.

This entry was posted on Thursday, August 29th, 2024 at 8:00 am and is filed under Tax and Life Changes, Tax News, Tax Tips and Tricks. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.