Being married brings many advantages besides having someone to help fold the laundry or comfort you when you’re having a rough day. Tax benefits are another benefit, although people don’t get married to save on taxes, thankfully. But in the U.S., if you do happen to be married, you should know that there are a great number of tax benefits to be had. Your CPA can tell you all about it during your next appointment. In the meantime, here’s a closer look at the tax advantages of marriage and how they can benefit couples at various stages of life.
Filing Jointly vs. Filing Separately
When you file a joint return, both incomes are combined, and you’re taxed according to the joint tax brackets, which tend to be more favorable than the individual tax brackets. For example, in 2023, married couples filing jointly can earn up to $89,450 and stay in the 12% tax bracket, while single filers would be pushed into a higher tax bracket with that same level of income. Filing jointly typically results in a lower overall tax liability.
On the flip side, filing separately can limit the tax breaks you are eligible for. Couples who file separately are often disqualified from claiming important deductions and credits, such as the Earned Income Tax Credit (EITC), education credits like the American Opportunity Credit and Lifetime Learning Credit, and deductions for student loan interest. Additionally, couples filing separately face stricter limits on certain deductions, such as the deduction for medical expenses.
Every situation is different, so don’t just automatically file jointly. Talk to your CPA for advice about how best to file.
Marriage Bonus: The Benefit of Lower Tax Rates
One of the most well-known tax benefits of marriage is the “marriage bonus,” which occurs when a couple’s combined income is taxed at a lower rate than if they had filed as individuals. This is particularly advantageous for couples where one spouse earns significantly more than the other.
For instance, if one spouse earns $100,000 a year and the other earns $30,000, their combined income of $130,000 would be taxed at a lower average rate if they file jointly. As individuals, the higher earner would be taxed at a higher marginal rate, while the lower earner’s income might be taxed at a much lower rate. Filing jointly smooths out these tax brackets, often reducing the overall tax liability for the couple.
Higher Standard Deduction
One of the biggest tax benefits for married couples is the higher standard deduction available to those who file jointly. For the 2023 tax year, the standard deduction for married couples filing jointly is $27,700, compared to $13,850 for single filers. This means that married couples can exclude a larger portion of their income from taxation, which often results in a lower tax bill.
The higher standard deduction is particularly valuable for couples who do not itemize their deductions. With the higher threshold, many married couples find that the standard deduction provides greater tax savings than itemizing their deductions. However, for those who do itemize, combining certain expenses, such as mortgage interest, charitable contributions, and medical expenses, can push them over the standard deduction limit, allowing for even greater savings.
Access to Spousal IRA Contributions
Another meaningful tax advantage of marriage is the ability to contribute to a spousal IRA. Normally, individuals need earned income to contribute to a traditional or Roth IRA. However, if one spouse doesn’t work or earns significantly less than the other, the working spouse can make contributions on behalf of their non-working spouse. This allows both spouses to benefit from tax-advantaged retirement savings, even if one spouse doesn’t have earned income.
Child Tax Credit and Dependent Care Credit
If you’re a couple with kids, marriage also opens the door to several family-related tax benefits. One to note is the Child Tax Credit (CTC), which provides a credit of up to $2,000 per qualifying child under the age of 17. The credit begins to phase out for couples earning more than $400,000. In addition, up to $1,500 of the CTC can be refundable, meaning you can receive it even if you owe no taxes.
The Dependent Care Credit is another valuable benefit for married couples with children. This credit allows you to claim up to 35% of qualifying childcare expenses, up to a maximum of $3,000 for one child or $6,000 for two or more children. This credit can help offset the costs of daycare, after-school care, or even summer camps, reducing the overall tax burden for working parents.
Estate and Gift Tax Benefits
Marriage provides significant estate and gift tax benefits that can help couples preserve wealth and pass it on to future generations. Married couples can transfer an unlimited amount of assets to each other during their lifetime or upon death without incurring federal estate or gift taxes, thanks to the unlimited marital deduction.
This deduction allows couples to transfer wealth between themselves without triggering gift taxes, regardless of the amount. Additionally, married couples can double the amount they can give to others without paying gift taxes. For the 2023 tax year, the annual exclusion amount for gifts is $17,000 per person, meaning a couple can give $34,000 to an individual (such as a child or grandchild) without incurring gift taxes.
Health Insurance and Flexible Spending Accounts
Marriage can also provide tax savings related to health insurance and medical expenses. Many employers offer health insurance plans with more favorable rates for married couples or families than for individual coverage. In some cases, one spouse’s employer may offer better coverage or lower premiums than the other’s, allowing the couple to save money on health insurance.
Married couples may benefit from Flexible Spending Accounts (FSAs) or Health Savings Accounts (HSAs). FSAs and HSAs allow individuals to set aside pre-tax dollars to pay for qualified medical expenses, reducing their taxable income. Married couples can contribute more to these accounts, particularly if both spouses have access to them through their employers.
Being married offers numerous tax benefits that can help couples reduce their tax burden and maximize their financial well-being. From lower tax rates and higher deductions to access to family-related credits and estate tax benefits, marriage can provide significant advantages at tax time. Couples should take the time to evaluate their financial situation, consult with a CPA, and explore all the potential tax benefits of marriage to optimize their returns and ensure they’re taking full advantage of these opportunities.
by Kate Supino