Ways Marriage Affects Your Taxes
Tax planning is probably the last thing you’re thinking about on the happiest day of your life, but after the excitement of your wedding has settled, it's wise to start financial planning. Once you get married, your tax situation will likely never be the same. Everything from your filing status to your tax bracket can change. You may end up paying more in taxes if you don't plan ahead.
Make sure you update all of your information after you get married because tax returns with inaccurate information can be rejected or even audited by the IRS. The names on your tax returns, as well as the names you have on file with the Social Security Administration, must match the legal names you now have after marriage. If you or your spouse has changed your address, inform the IRS, your employer and the U.S. Postal Service to make sure you'll receive all of your important tax information.
Higher Tax Brackets
For many years, married taxpayers complained about the "marriage penalty" that hit some dual-income taxpayers with a larger tax bill after marriage than they would have paid if they had remained single. In 2001, Congress passed the Economic Growth and Tax Relief Reconciliation Act, which largely eliminated this problem. The act doubled the standard deduction and tax bracket levels for those who were married.
While the 2001 legislation removed the marriage penalty for the vast majority of taxpayers, some higher-income filers may still face a problem since the highest tax brackets are not exactly double those of single filers. For example, as of 2015, the 33 percent bracket for a single filer started at $189,300, but for joint filers it only rose to $230,450. If two high-income filers marry, they may still face a "marriage penalty."
Capital Gains Tax on Your Home
One of the main tax advantages after marriage is that you get to double your capital gains tax exemption if you sell your home. A single person who lived in his or her home for at least two of the past five years and used it during that time as a primary residence, can exclude up to $250,000 in gains when he or she sells the home. But, as soon as you marry, that amount doubles to $500,000, assuming that both spouses meet the two-year residency requirement.
Although you're not technically liable for your spouse's prior tax liabilities, you might end up footing part or all of the bill. If you file a joint return with your spouse, the IRS can take your refund to pay off your spouse's prior tax liability. You may be able to avoid this problem with an "injured spouse's allocation" — splitting your refund into two portions — but you'll have to file documents with the IRS.
If your spouse is of the same sex, you are both considered legally married under federal law. In other words, the same tax brackets, benefits and liabilities that apply to traditional married couples also apply to you. This is not true in the case of registered domestic partnerships or other civil unions that are not formally recognized as marriages.