The arrival of summer is also the start of wedding season. Marriage changes many things and taxes is one of them.
Here’s a tax checklist for newly married couples:
Name and address changes
Name. When a name changes through marriage, it is important to report that change to the Social Security Administration. The name on a person’s tax return must match what is on file at the SSA. If it doesn’t, it could delay any tax refund. To update information, file Form SS-5, Application for a Social Security Card. It is available on SSA.gov, by calling 800-772-1213 or at a local SSA office. Change your name on your drivers license, credit cards, bank account, and any other pertinent documents.
Address. If marriage means a change of address, the IRS and U.S. Postal Service need to know. To do that, send the IRS Form 8822,Change of Address and notify the postal service to forward mail by going online at USPS.com or to the local post office.
Withholding
After getting married, couples should consider changing their withholding. Newly married couples must give their employers a new Form W-4, Employee’s Withholding Allowance, within 10 days. If both spouses work, they may move into a higher tax bracket or be affected by the additional Medicare tax. Couples can use the IRS Tax Withholding Estimator to help complete a new Form W-4 or review Publication 505, Tax Withholding and Estimated Tax for more information.
Filing status
Married people can choose to file their federal income taxes jointly or separately each year. While filing jointly is usually more beneficial, it’s best to figure the tax both ways to find out which works best.
Remember, if a couple is married as of December 31, the law says they’re married for the whole year for tax purposes.
Insurance coverage
Check your insurance policies after you get married. Combining separately held health insurance policies with a spouse can result in savings and discounts. Most group health insurance policies allow spousal coverage. You may want to opt for coverage under your partner's policy if it’s better or less expensive. Married couples are often considered a better insurance risk, so together, you may qualify for a lower rate. Also, evaluate your need for disability or long-term care insurance.
Beneficiary designations
Review and update if necessary your beneficiary designations on life insurance policies and retirement accounts.
Estate planning
Update your estate plan once you’re married (or create an estate plan, because everyone needs an estate plan!). Incomplete paperwork or obsolete choices could mean your intended beneficiary may not end up with your assets. You should periodically review and update your existing will and other estate planning documents. This is especially important when your marital status changes. Before you get married, Consider a prenuptial agreement if there are children from a prior marriage or if you own substantial assets.
Other documents
Review any other important documents. Make copies of your estate papers and final divorce decree. Keep the originals in a safe place.
Tax planning
Your tax liability will probably change when you get married. Newlyweds may face higher taxes due to the so-called marriage penalty. Either way, you may need to change - or combine - your entire tax plan with your tax professional.
Marriage Penalty
What is the marriage penalty?
The marriage penalty occurs when a married couple pays more federal income tax than two single taxpayers with the same total amount of income.
This phenomena occurs whenever there is a tax benefit for a married couple that is not twice the amount of two single taxpayers with the same amount of income. This happens because:
Tax rates are progressive with rates ranging from 0 to 37 percent. So unless the tax tables are always double for a married couple versus two singles, there will be a penalty.
Phase out ranges. If a tax benefit for a married couple phases out at less than double two single taxpayers, the couple loses the benefit sooner.
Itemized deductions. The itemized deduction for taxes is limited to $10,000 for a married couple. However two single taxpayers get a $20,000 tax deduction limit!
While married taxpayers have the choice of filing jointly or as married filing separate, the married filing separate status does not provide the same tax benefit as does filing as two single taxpayers. As a result, these two taxpayers are being penalized for being married.
Creating financial goals as a couple
Financial goals make it possible for you and your partner to achieve the things you dream about. Here are three things you can do to create financial goals as a couple:
Start talking sooner rather than later. Finances can be hard to talk about. People sometimes feel guilty about debt or ashamed that they don’t make more money, and many people consider money to be a private thing that shouldn’t be discussed. However, the first step to setting financial goals as a married couple is to just start talking. The sooner you start talking with your spouse, the better prepared you’ll be to make positive financial decisions and set goals. Saving for big purchases, for example, takes time and planning. Having a discussion early gives you more time to start saving.
Don’t just agree on what the goals are, agree on how to achieve them. Once you’re talking about your finances, you’ll want to discuss your goals, such as paying off your credit card debt, saving for a vacation, or building a financial safety net. After you’ve agreed on what goals you’d like to achieve, discuss how you’ll work together to achieve it. The best financial plans require both spouses to contribute to the goal, whether that means each agreeing to contribute monthly to a savings account, or just giving up your gourmet latte habits.
Keep the conversation going. Plans need maintenance to succeed. That means continuing to talk about them and checking progress on a regular basis. It’s important for both partners to know all the numbers, even if one partner manages the finances. Scheduling ”financial date nights” to have regular financial conversations is a good way to keep you and your spouse on track to achieving your goals, to ensure that things are going as planned, and to check in and adjust the numbers as needed.
Resources: Topic 157, Change Your Address – How to Notify the IRS