For many couples, getting married involves a substantial investment, no matter the size of the wedding. Making a commitment to your spouse might be the best day of your life. It may also be the most expensive.
However, legally wed couples typically experience some financial reprieve when they combine households. And although tax liability tends to decrease as single life fades into the past, those who tied the knot in 2020 may be hit with a penalty.
To have and to hold…and pay more taxes
In some cases, filing a tax return as a married couple can provide a welcome financial break. Other times, combining incomes might become problematic.
In joint returns, tax assessments apply to a couple’s shared financial gains, rather than those of two separate parties. Yet, deductions may not weigh as heavily against what’s owed when compared with single filers’ tax bracket thresholds.
If this will be your first year to file together, some considerations include:
- A combined income above $622,050 puts you and your spouse in a 37% federal tax bracket. Meanwhile, you could remain in the 35% bracket as a single making as much as $518,400 per year.
- If your joint income is over $250,000, plan to be responsible for a 3.8% tax on net investment income. This includes earnings from rental properties, capital gains, dividends and interest, calculated after expenses such as brokerage fees. For singles, this applies to a modified adjusted gross income of more than $200,000.
- Newlyweds with children from previous relationships could also anticipate increased tax liability. As single parents, both individuals could file as the head of household. Filing jointly, however, may result in a higher obligation to the IRS than in previous years.
Although spouses may encounter an increased tax burden, there’s very little chance liability will compare to the cost of your wedding. Even if you owe more than you can pay in one lump sum, there’s likely a payment solution available. Taxes may be inevitable, but they shouldn’t steal your joy.