Does getting married help or hurt your federal tax liability?
This is one of the most common questions I hear from newlyweds and something my wife and I considered when budgeting in our first year of marriage. Like many things in life, the correct answer is, “it depends.” Getting married can be a tax benefit to one couple and an increased liability for another.
Let us take a look at the case study below. For simplicity, we will only be referring to taxable income and will focus on single filing vs. married filing jointly.
Disclaimer – This analysis is for illustrative purposes only and should not be considered advice. Please consult your tax advisor to understand the impact to your specific situation.
Take a close look at the tax brackets below. What do you notice?
Up to the 25% tax bracket, the ranges for married couples filing jointly is double that for single filers. From the 25% tax bracket and higher, the income brackets increase more quickly per person than for single filers.
A Marriage Tax Benefit
Let us use an example where spouse A and B have taxable income of $270K and $30K, respectively. If they were single, their total tax liability would be $76.7K, however if they were married it would only be $74.4K.
The result is a benefit of approximately $2.3K for filing jointly. This happens because Spouse A is able to utilize the increased income brackets with his or her high salary.
Marriage Can Increase Your Tax Liability
Now, let us take the same couple, but assume that each of them earn $150K. Their tax liability married filing jointly does not change. However, if they were not married and filed single, the total taxes paid between the two of them would be $70K.
This couple would be in the position where getting married (refer to table 3) increases their tax liability by $4K. Ouch! The driver is that when married they reach the 33% tax bracket and when single only make it up to the 28% tax bracket.
I like these illustrations because they show getting married can impact your federal tax liability for better or for worse. In each scenario the couple had a total combined taxable income of $300K.
While it is unfortunate to get married and incur a higher tax bill, there are many other financial considerations:
- Start the clock with your social security together1
- Generally, you must be married one year before being eligible to receive spousal social security benefits
- A divorced spouse must have been married 10 years to be eligible to receive spousal benefits
- You can leave any amount of money to a spouse without paying estate taxes
- You can shop for the best insurance between spouses, or better yet, put an uncovered spouse on your plan
There are many great articles that articulate even more tax and estate planning benefits to getting married. While I don’t recommend making the decision of marriage based on one’s tax situation, I do suggest that you analyze your combined tax situation when getting marred to avoid being surprised when you file. Mazel Tov!