Just Married? Here Are Some Newlywed Tax Tips to Stay on Track
If you’ve just tied the knot, you’ve also tied your financial life with your spouse. That comes with many tax-related implications, and it’s highly recommended that they be addressed right away. By doing so, newlyweds can avoid tax complications during filing season.
Where should newlyweds get started? A good starting point is notifying the right agencies regarding your martial status. It’s also a good idea to consult with a tax professional, as they can provide individual insight into your taxes.
Who to Notify if You’ve Just Been Married
It’s common for people to change their name, their address or both when getting married. Name and address changes must be communicated to the proper agencies or there could be filing issues. Specifically, this is who to contact:
- The Social Security Administration – The IRS verifies information on tax returns through other institutions, including the Social Security Administration (SSA). If the name on your social security card does not match the name on your tax return, the IRS will reject it. One of the first agencies to notify, then, should be the SSA.
However, timing is important. It takes about two weeks for the SSA to process a name change, but a bit more time will be needed to ensure the IRS and SSA communicate properly with each other regarding the change. As such, avoid name changes near tax season. Instead, consider making a name change after filing your tax return.
- The IRS – If you’re changing your address following the ceremony, notify the IRS. While the IRS will automatically update your address following your next tax return, any communication in the interim may not reach you. Also, USPS will not forward some types of federal mail, which will make communication even tougher.
To officially change your address on file with the IRS, complete form 8822.
- The U.S. Postal Service – Again, to remain in communication with the IRS, update your address with the USPS. Without mail forwarding, an accurate IRS address is essential to get your mail reliably.
- Your employer – It’s important to communicate any name and address changes to your employer, as this will ensure your W-2 is delivered on time.
- Any financial institutions you do business with – Banks, brokerage firms, and any employer-sponsored benefit plans are included in this. Address updates are particularly important, as this ensures all 1099s are sent to the right place.
- Your health insurance marketplace – The Premium Tax Credit is used to offset the cost of health insurance premiums, and it may be paid in advanced installments. To do this, policyholders estimate their income for the year. However, a change in marital status may alter how much of this credit is available. Notify your health insurance marketplace to ensure there are no surprises.
Married Couples May Need to Adjust Their Income Withholding
Tax-wise, things can quickly get complicated if both newlyweds bring in income. One of the biggest concerns is income withholding. When newlyweds decide to file taxes as a married couple, their income is combined to determine which tax bracket to place the couple in.
If your household and income have both increased in size, your tax burden may have as well. If your tax rate has gone up, your current withholding rates may not be sufficient to cover your overall tax burden. If this is the case, you’ll need to provide your employer with a new W-4 (Employee’s Withholding Certificate) to adjust withholding amounts.
Married Filing Jointly or Married Filing Separately – Which Is Best for Your Tax Situation?
Of course, married couples can still file individually. First, are you and your spouse eligible to file as a married couple? The IRS considers your marital status on December 31 of the tax year for this purpose. If you were married after this date, you and your partner will still need to file as single taxpayers for the previous year.
Assuming you can file as a married couple, should you? Here’s a look at each filing status and their advantages:
- Married, filing jointly – When couples file jointly, they’re essentially filing as a single entity, from the IRS’s perspective. Many couples choose this route because married couples typically have reduced tax liabilities and additional deductions to choose from.
If a couple decides to file jointly, the decision cannot be amended retroactively.
- Married, filing separately – Alternatively, married couples may file their own individual tax returns. That means two tax returns will be needed, one for each newlywed. When filing separately, there are fewer deductions and credits to take advantage of, so in most cases, the total tax liability between both people will be higher than if they were filing jointly. Further, if one spouse itemizes deductions on their return, the other spouse must itemize deductions, too. They cannot take the standard deduction, in other words. Because of this, it’s common for there to be significant mismatches between what each spouse is paying.
Separate returns, though, can be retroactively amended as a joint return up to three years after filing.
When does it make sense to file separately? In some instances, married couples may be able to reduce their tax liabilities to a greater degree if both itemize their deductions. Another reason is if one spouse has a “risky” tax position, hasn’t filed their returns, or hasn’t reported all their income. In this instance, filing jointly may make the other spouse liable for any outstanding tax debts. It may also make sense to file separate returns if one spouse is on an income-driven repayment plan for their student loans.
A Lot Changes When People Get Married, and a Tax Expert Can Help Sort Those Changes Out
When newlyweds imagine their future lives together, they don’t usually dwell on their taxes. But taxes are a major consideration when getting married. Depending on how a couple files their taxes, there could be a large spike or drop in tax liabilities. Ultimately, the only way to know for sure is to consult with a tax expert and ensure that all tax-related concerns are resolved.
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