Getting married can be a lot of work. I should know, as I just recently tied the knot myself. Even though my wonderful wife handled 90% (95%?) of the planning – and even though we wanted to have a “low key” wedding – there’s a ton of planning that goes on any time you’re putting on such a big event.
Thankfully everything went off without a hitch and now I’m back thinking about all the financial repercussions of being married (truthfully I started working on this article during the beginning of the year).
Being married definitely changes how you handle your finances. We’ve already taking advantage of shifting of our income. But what about all the little rule changes that happen when you switch from filing your tax returns as single to married? I’ve tried to round those up here.
When you get married doesn’t matter
The IRS only cares if you are married on December 31st of the calendar year. If you are married on that date, the IRS will consider you married for the entire year. The same is true if you get divorced during the middle of the year. The IRS will consider you single for the entire year. The only exception to this rule is if your spouse dies during the year. In that situation, the IRS will let you file your taxes as married for the entire year.
Effects of marriage on IRAs
1. Backdoor vs Front door Contributions.
In our situation, we got married in July but the IRS will treat us as married for the months of January through June too. Accordingly, it’s important to think back to those months and make sure you’re not running afoul of any of the tax rules (or better still, take proactive measures if you’re planning on getting married).
One example of this is Roth IRA contributions. Previously my wife was under the income limit and could make normal Roth IRA contributions. Now that our income is combined, she’s ineligible and must make Roth IRA contributions through the backdoor. To avoid a huge headache, we stopped her Roth IRA contributions in January of this year. If we hadn’t done so, we’d have to go back and re-characterize any contributions made from January to June since she’s now ineligible to make them.
2. Previous Tax Year Contributions.
Along the same lines, earlier in the year we took advantage of income shifting to make sure her Roth IRA was maxed out for the previous year. This is because of a quirk in the Roth IRA funding deadline that allows you to make a contribution under the previous tax year anytime between January 1st of the current year up until the tax filing deadline.
In other words, let’s say that you failed to make a Roth IRA contribution in 2016. Any contributions made between January 1st, 2017 and April 18, 2017 (the tax filing deadline for 2017) can be counted toward either the 2016 limit or the 2017 limit. This effectively gives you 15 months each year to make a Roth IRA contribution.
For us, once we knew we were getting married, we took advantage of this rule to max out her Roth IRA contribution for 2016. Since my wife filed her taxes as Single in 2016, she was able to make this contribution directly through the front door (albeit with money I moved from my accounts into hers). This was a handy way for us to get an additional $5,500 sheltered and even better that we could do it for the previous tax year. I don’t want to leave any tax-advantaged space behind!
3. Married Spouses Can Fund Each Other’s IRAs.
Although not applicable to us, another benefit of filing your taxes as married is that one spouse can make a contribution to another spouse’s IRA regardless of whether that spouse has any earned income for the year. If your spouse is taking a year off, raising kids or otherwise doesn’t have any earned income, they would typically not be allowed to make an IRA contribution since you must do so with “earned income”. The spousal rules remove this restriction, which means the working spouse can contribute the maximum amount to each spouse’s account.
Standard vs itemized deductions
If you live in a location with high state and local taxes (like New York or California) or if you own your own home, chances are good that you’re itemizing your deductions on Schedule A each year. This is because the standard tax deduction is $6,350 (as of 2017), while your state and local taxes and mortgage interest is likely to be much higher.
Choosing the standard tax deduction or itemizing your deductions is an either/or proposition. If your itemized deductions are higher than $6,350 (or $12,700 filing married), then you’ll go with those. If they’re lower, you take the standard deduction.
The problem with taking the standard deduction is that you don’t get any additional credit for below the line deductions that you would have otherwise been able to claim had you itemized your deductions (e.g. gifts to charity).
Before we got married, I itemized my deductions (thanks to living in NYC) while she took the standard deduction. Now that our tax return is combined, we’ll both be using itemized deductions which mean that anything she could have listed on Schedule A but didn’t (since she was taking the standard deduction) are now fair game.
In other words, all of her charitable contributions which were previously not deductible are now deductible. We’ll take it! In case anyone is wondering, yes – for the past couple of years I’ve made her gift me all donations and then I’ve made them myself. But I still wanted to highlight to difference in case anyone isn’t thinking of it.
Marriage penalty vs marriage bonus
There’s a lot that has been written about a “marriage penalty” when it comes to filing your taxes. Prior to 2001, the standard deduction for single filers was greater than half of the standard deduction for married filers. I looked up the numbers and in 2001 a couple that wasn’t married could each claim $4,550 as a standard deduction if they filed Single but only $7,600 if they filed Married. Thankfully, this has been repealed and now a married couple can claim exactly twice the standard deduction available to a single filer.
However, there is still a “marriage penalty” in the sense that the married tax brackets aren’t exactly twice the amount of the single tax brackets.
You can calculate whether you’ll receive a marriage penalty or a marriage bonus using this calculator, but the calculations are a bit flawed for those of us that itemized our deductions. The calculator will take into consideration those itemized deductions when calculating how much tax you have to pay as a Single filer but then it conveniently forgets to include it and switches you to the standard deduction when calculating your taxes as married.
Suffice to say that whether you receive a penalty or a bonus in large part depends on the discrepancy in the incomes of the spouses. Two spouses earning a similar amount of money are more likely to see a penalty while one working spouse and one stay-at-home spouse are more likely to see a benefit. You can see this visually displayed on a New York Times graphic.
Joshua Holt is a practicing private equity M&A lawyer and the creator of Biglaw Investor. Josh couldn’t find a place where lawyers were talking about money, so he created it himself. He knows that the Bogleheads forum is a great resource for tax questions and is always looking for honest advisors that provide good advice for a fair price.
Fifteen thoughts on Getting Married and Taxes
Congratulations on getting married, BLI!
Thanks WSP! The wedding was tons of fun.
I’m getting married this summer as well and am looking forward to the tax benefits that come along with it! Obviously not the reason I am getting married, but they are still nice. Combined, we’re able to drop into the 15% tax bracket vs. my individual rate of 25%, which will be very nice indeed.
Congrats on your marriage!
The tax benefits for us are pretty good. The government is happy with us getting married, so it’s a nice benefit. Congratulations on your upcoming wedding!
Congrats again on getting married! I would have been phased out of the student loan deduction soon after law school if I didn’t get married so I’ve been able to continue taking that deduction.
Congrats on the marriage! For myself, taxes are better for me in 2017 simply because my wife is still a resident earning a measly $4,000 per year (yes, you read that right – if you specialize in dentistry, they expect a 31-year-old to earn $4,000 in a year and take out loans for the rest).
Do they have the nerve to pay her that in 26 installments over the course of a year or do they give it to her all at once? You make more money on your side hustles!
We’re currently benefiting from a marriage benefit as a single income family, but as I’ve contemplated going back to work I’ve calculated my incremental income at around 60% of my gross pay after taking out taxes only, so we’ll definitely experience the marriage penalty in the near future as well.
I loved the visual from the New York Times post you shared. It was really interesting to see how much of a penalty applies under different situations.
Ouch, that certainly makes the decision tough. But as with all things personal finance, it’s great to know the numbers so you can make an informed decision.
Congrats on the nuptials!
In a single income household like ours, the marriage bonus is huge! I don’t know that you left much out in terms of taxes. In terms of marriage in general, there are a few more pros and cons, but that’s a subject that could fill a bookshelf.
Five Thirty Eight had an interesting post and graphic on the marriage penalty / bonus that illustrates what you pointed out. The greater the income discrepancy, the more advantageous and vice versa.
Yeah, the marriage bonus is always a plus when you have a single income household. It’s almost like the government is encouraging one spouse to stay at home?
Congrats BLI. Welcome to the world of married men.
Interesting post. I definitely never understood the “Married: filing separately” grouping, but I suppose there are benefits. Much like PoF, my wife does not work and so I get huge benefits by filing as a married couple. Taxes are still brutal, particularly in Cali and so I am always trying to maximize my deductions.
Cheers – thanks! Glad to be here. MFS is almost always a horrible option. When we looked at it because we wanted to minimize PSLF payments, it didn’t look that great either. MFJ is truly a wonderful thing when one spouse isn’t working. The government is very happy to help subsidize that stay-at-home spouse!
Congrats on getting married! I’m also a recent newlywed and was bummed when I learned that the government doesn’t care when you got married. So I had to stop my Roth contributions this year. One thing I didn’t see in your post: I’m in the same boat as your wife re: the Roth. So, how are you guys re-routing that money now? We make too much to have traditional IRAs be tax deductible. Did you guys do a Roth conversion or just re-route to taxable accounts? Curious to know what others have done, especially someone else who has to deal with NYC taxes, too!
This year we will both make Backdoor Roth IRA contributions to make out those accounts ($5,500 x 2). I did mine earlier this year but waited until we got married to do hers.
There’s a little more about my tax strategy for 2017 in my tax report for last year:
2017 Tax Report