Getting Married? You, Your Love, and the Taxman

Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.

So you’re getting married in June, with all the ancient Roman rituals like getting married in the month of Juno – Juno, being the goddess of marriage, would be pleased at your choice of months, and thus give you happiness and prosperity; and add the bridal veil tradition to hide from evil spirits. Don’t forget the taxman’s suggestion of getting pregnant quickly so that not only can the wife still help with the harvest in September and October, but will be able to help with the April and May spring harvest (with the baby on her back like a papoose). The more crop, the more tax revenue. Yes, the tax man thinks of everything.

Although the song is ‘Love and Marriage,’ is this just another way for the Government to collect more revenue? One of the first things is that the local government has its hand out. You give your money, and you can get a certificate to get married.

The ‘married filing joint’ tax status was created in 1947 and it saved couples a lot of money if there was only one income. As women starting taking men’s jobs (okay, only joking), a ‘marriage tax penalty’ emerged (thanks to Congress in the late 1960s) causing the couple to now pay more taxes together as compared to the tax liability if single.

One of the inequities was that the ‘standard deduction’ allowance for marrieds was not double that for singles, and another was the same inequity in the width of the tax brackets. In 2001, President Bush eased the tax on marrieds to make them on par with singles. This benefit has been extended through 2012.

Once you are government-approved married, you have the option of filing jointly, or filing as married-filing-separately – the highest of the tax computations.

Here are just a few of the marriage problems:

Itemized deduction threshold – Medical: You can only deduct medical expenses which exceed 7.5 percent of your total joint income (called Adjusted Gross Income or AGI). So if you make $50,000, the first $3,750 is not deductible. If you both make $50,000, your AGI is $100,000, so your deductible is doubled, or $7,500. Solution: possibly file married-filing-separate – the highest tax rates. (Yes, the taxman is happy.)

Itemized deduction threshold – Miscellaneous Deductions: The deduction here is 2 percent of your AGI. So looking at the above example, being married means the first $2,000 of expenses is not available. For example, teachers’ classroom supplies, police uniform maintenance, or union dues. Solution: Possibly file married-filing-separate (MFS) – the highest tax rates.

Oh, and by the way, if one of you file as MFS, then both of you have to file MFS. (And this is true for many States as well.) So if one of you itemizes your deductions, then both of you must itemize. (Remember, for better or worse.)

If you have stock losses, as a single, you are allowed a $3,000 maximum deduction; as married, you are allowed double that, or $6,000. Right? Wrong. Congressional math allows you the same $3,000 deduction. Oh, and MFS are allowed $1,500 each. (Something wrong with this picture?)

If you make $20,000 and your spouse makes $25,000, your dependent care credit is 20 percent of expenses (subject to a limit); if you were single, and made $20,000 your dependent care credit would be 32 percent; but if you are MFS, you don’t qualify for this credit –nothing. (Ah, the happy couple.)

Rental Loss: If you are single and you actively managed your rental real estate investment and had a loss, you can deduct up to $25,000; and if you are married? $50,000? No. The same Congressional math, $25,000 x being married (2) = $25,000. Possible answer: file MFS. Oh, sorry, your deduction is zero.

Other penalties for the married-filing-separate status include not being able to deduct student loan interest, not being able to take the Earned Income Credit, not being able to exclude income from qualified U.S. Savings bonds, not being allowed the Lifetime Learning or Hope credits, and restrictions in the retirement area, like IRA contributions.

And for you seniors, there is also a marriage tax penalty: There is an income level of $25,000 for singles, but only $32,000 (not $50,000) for marrieds before your social security benefits enter the taxable arena. File separately? The threshold is $-0-. (Yes, the taxing of social security is double taxation, but you can afford it, right?

A second area is remarriage. If you are at least 62, have been married at least 10 years, are divorced, and your ex is entitled to receive benefits, you can collect retirement benefits on your former spouse’s Social Security earnings. However, if you remarry before age 60 you cannot collect on those earnings unless your second marriage ends. This is why so many seniors live in sin.

Don’t get me wrong though; there are a number of advantages that marrieds receive (in the tax area). One is the home sale profit exclusion whereby marrieds get $500,000 versus $250,000 for single sellers. Another is the estate tax exemption whereby all can be left to the spouse with no federal estate taxes (but watch out for the state). A third is the mainstay of the depression era, Social Security, where the non-working wife can collect based on her husband’s benefits without having to have worked (outside the home) a day in her life.

Oh well, whoever said life or taxes were fair?

Now, on to the wedding

plans…

Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.