The cost of a wedding is only the first of many financial decisions that newlyweds are likely to share. During the first year of marriage, newlyweds will be confronted with the reality of filing their taxes with new options and laws that account for their new status. While newlyweds may be able to save money on taxes compared to what they were paying before, they can only do so when they understand the tax laws that apply to them.
The IRS and states with income taxes allow newly married couples to select from two filing statuses. Prior to marriage, each member of the couple filed as either single or as a dependent of a parent or someone else. Once married, newlyweds can choose to file as married filing jointly, or married filing separately. Married filing separately is a useful status for some couples who wish to keep their finances separate. Married filing jointly is a status that allows a couple to pool its income, share the tax burden evenly, and save more on taxes overall.
Regardless of their financial arrangements, newlyweds will be responsible for paying taxes on the sum total of their incomes at the end of the year. This includes all income from work, investments, unemployment compensation, and other sources for both members of the couple. If a newly married couple files jointly, they may fall into a higher tax bracket since their joint income is more than what they made as individuals in the prior year. However, tax rates for married couples filing jointly are different from the rates for individuals who earn the same amount.
Newlyweds who file jointly can claim a larger exemption, which reduces the taxes they owe. They will also be able to qualify for more deductions and credits, since the maximum income for deductions and credits is usually higher for married couples. For example, if one spouse earns $100,000 a year and the other makes $40,000, the couple can claim a deduction that has an $80,000 income limit for individuals and a $160,000 limit for couples; the higher earning spouse would have been ineligible for this deduction in the past.
Getting married has additional tax implications that newlyweds need to be aware of. Debt and credit scores are usually affected by a marriage. For example, a couple's employment history and credit scores will impact their ability to get a joint mortgage. A higher joint income may mean a higher student loan payment for one or both members of the couple under an income-based repayment plan.
- wedding image by Mat Hayward from Fotolia.com