Tax Tips for Newlyweds
This post is in honor of Danielle and Jeremy, my favorite newlyweds of the year!
Congratulations on getting married! It’s so fun to start out your new life together, but it’s a big adjustment too. One of those really difficult adjustments is learning a new phrase, “Our money.” You already know “your” money and “my” money, but the whole “our” money concept is a little difficult to grasp sometimes. Hopefully, this will help with the tax side of that at least.
Pick the right filing status: It doesn’t matter how long you’ve been married for, if you were married on December 31st you are considered married for tax filing purposes. For most couples, your best bet is to choose the Married Filing Jointly tax status, it will usually give you the best tax rate. There are times though, when it may make sense to use the married filing separately status. For example: if one of you has an income tax problem from before the marriage, it might make sense to file separately until the tax issue is cleared up. Many accountants will tell you to just file jointly and file an injured spouse claim. I often recommend that too. But if filing separately isn’t going to hurt your taxes very much, I prefer keeping your tax matters completely separated until the old tax issues are erased. It’s just a safety precaution. When you file separately, you know exactly what money you’ll get back from the IRS, when you file as injured spouse, the IRS makes the determination. I prefer keeping the control.
Now that you’re married, you cannot claim the Head of Household filing status. This is a common problem that I see with tax returns all the time. Couples who have been together for years and have a couple of kids decide to get married. They forget to change their filing status on their tax forms after they get married. Oops. Not only is it a mistake, but if you received benefits that you wouldn’t have gotten if you filed as married, then it’s considered income tax fraud. Don’t fall into that trap. Be sure to use one of the married filing statuses. (If the marriage goes belly up and you separate for the last 6 months of the year, then you might be able to file as HH, but this is the newlywed page.)
The good, the bad, and the ugly: The good part about married filing jointly is that you double your exemption and your standard deduction. Also, your tax rate is lowered. If you’re a newlywed and one of you is the wage earner and the other had little or no income, you’re going to have a great tax year.
The bad part is that with most young married couples today, both spouses are working. Your deductions may go up but really you’re just combining your two incomes so you really get no major tax break at all for being married.
Now here’s the ugly: For some couples getting married actually puts them in a worse tax situation than when they were single. For example: this year we have the making work pay tax credit. It’s $800 for married couples and $400 for singles. That seems fair. The problem here is that if you put down “married” on your withholding form at work, they took your taxes out based on you getting that $800 credit. They did the same thing for your wife. Now, instead of your tax return evening out nicely, you could wind up owing taxes (or having a much smaller refund than you expected.)
Here are some other issues that you might not have thought about yet. First to the bride, did you change your name? If so, did you make it official with social security yet? If yes, then you’ll be able to file your tax return with your new name. If not, make sure that you use your old name to e-file your tax return. If you don’t use the name that the social security office has on record for you, your tax return will be rejected.
The stupid question: Whose name is going to go on the top of the form? I warned you it was a stupid question. Does it matter? No. What does matter is that the name that’s on the top of the form will stay there. Some couples, especially if they have equal incomes, will change which name goes on top each year, seems fair doesn’t it? What they don’t realize is that the IRS looks at that as an attempt to cover up fraudulent activity. Generally, put the higher wage-earner’s name on top of the form and leave it there, even if your incomes change later.
Hopefully, you’re getting a refund. Aside from those wedding gift checks, this will be the first “joint” money you receive. That’s kind of cool. Do you have a joint bank account yet? The money will be in both of your names, so both of you should be named on the checking account for the money to be direct deposited. One thing you should know, although the IRS will direct deposit your tax refund into a single account of a married couple, some states and financial institutions won’t allow it. If your refund seems to have gotten held up, that could be the reason.
One last piece of advice: If you are getting a refund this year, it’s a great way to start putting away some money into savings. I know you’ve got bills to pay and things you want to buy, but saving now while you’re just starting out is the best thing you can possibly do for yourself. Allocate some money for spending, but get that savings cushion started and keep adding to it. You’ll be glad you did.
I just saw a news item on television: Couples with $10,000 of debt and zero savings are twice as likely to get a divorce as couples with $10,000 in savings and zero debt. The best thing you can do for your marriage is to have a little padding in that savings account. (End of mom-style lecture.)