It’s a common question we get as financial professionals: What are the tax benefits of marriage?
As couples plan for their big day, the last thing most people think about is taxes. However, marriage can have a big impact on a couple’s financial situation, especially in how they file their tax returns and how much tax they’ll pay.
Depending on the circumstances, there can be significant tax benefits of marriage, but there can also be drawbacks. For many people, the main tax benefit of filing as a married couple is ease: They get to file a joint tax return, and sometimes, take more deductions.
Minimizing any potential negative tax implications of marriage requires advance planning — ideally, before you and your betrothed walk down the aisle and say “I do.”
What are the key benefits of married filing jointly?
There are two main tax-filing options for married couples: Married Filing Jointly or Married Filing Separately.
For many couples, choosing to file jointly will result in the most tax benefits of marriage, including the following.
Standard deduction and other deductions and credits
The standard deduction for a single person or a person filing as Married Filing Separately is the same. It is $12,950 for tax year 2022.1
When two individuals get married and decide to file jointly, their standard deductions combine, and their Married Filing Jointly standard deduction becomes $25,900 for 2022’s taxes.1
So, the standard deduction for a married couple is not “higher”; it is the combination of the two single individuals’ standard deductions. The advantage to Married Filing Jointly comes in with tax credits available only to married couples. Married couples filing jointly may qualify for several tax credits they would not have if they filed separately, including the Earned Income Tax Credit, Child and Dependent Care Tax Credit, and American Opportunity and Lifetime Learning Education Tax Credits.
Easier and less expensive filing
Simply put, it generally takes less time and effort to file one tax return than it does to file two returns. And if you hire a professional accountant or CPA to do your taxes, it may be less expensive for that person to prepare one return than to prepare two returns.
Potential for a lower tax bracket
Traditionally known as the "marriage penalty," this is a scenario in which a married couple earning similar salaries is pushed into a higher tax bracket than if they remained single. Congress has largely eliminated this tax penalty by adjusting the tax brackets so that now the marriage penalty only hits the highest-earning couples.
The top bracket of 37% is an exception. This rate covers income over $523,601 for singles and married couples filing separately and income over $647,851 for married couples filing jointly. So a couple earning this much money could still be subject to the marriage penalty if they file separately.1
Preservation of estate
Married couples can leave an unlimited amount of money to their spouses without generating any estate tax. This can protect a wealthy decedent’s estate from taxation until the death of the surviving spouse.
Potential for higher IRA contributions
Single individuals who aren’t working generally cannot contribute to an IRA. But if a couple is married and one spouse isn’t working, the non-working spouse can contribute to an IRA using joint income. An eligible married couple filing jointly can make IRA contributions to two separate IRAs, or one for each spouse.
In addition to these tax benefits, the financial benefits of marriage can include discounted auto and homeowner’s insurance, better rates on health insurance, and better rates and terms on loans and credit.
What is the marriage penalty and the EITC?
Keep in mind that low-earning couples could be hit with a marriage penalty if they claim the earned income tax credit (EITC). The EITC is a refundable tax credit available mainly to working parents with children.
This is because taxpayers are no longer eligible for the EITC once their income exceeds a certain level, which is based on how many children they have. For example, a married couple with one child will no longer qualify for the EITC once their income exceeds $49,622 for tax year 2022.2
Interestingly, to qualify for the EITC, the income limits for married taxpayers are not double those for single taxpayers. For example, the income limit for the 2022 tax year is $43,492 for a single taxpayer with one qualifying child, but only $49,622 for married taxpayers with one qualifying child.2
Investment income, medicare taxes and SALT
Something that might impact the tax benefits of marriage for high-earning couples is the potential for being penalized by having to pay the net investment income tax of 3.8% and the Medicare surtax of 0.9%.3,4
Single filers aren’t subject to these taxes until their income exceeds $200,000, but the threshold for married couples filing jointly is $250,000.4
This means a couple would have a combined threshold of $400,000 if they remained single, but just $250,000 if they got married. If one spouse earns $150,000 and the other earns $100,000, they would not be subject to these taxes if they remained single, but they would be if they tied the knot. The threshold for married filing separately is $125,000.4
Tax reform’s limit on the itemized deduction for state and local taxes (or more simply, SALT) to $10,000 could also negatively impact couples who get married. This limit applies to both single filers and married couples filing jointly.5
So, if each spouse has $10,000 in SALT and they get married, their total deduction will be just $10,000, not the combined $20,000 if they each remained single. Keep in mind that a married couple would need to have another $15,100 in itemized deductions for it to make sense to itemize rather than taking the standard deduction that has increased to $25,900 in 2022.5
If you are recently married or plan to get married soon, you should consider meeting with a financial professional or tax advisor to talk about how your marriage could affect your tax situation. The sooner you plan, the better chance you’ll have of enjoying some of the tax benefits of marriage.