I’ve been thinking about marriage and relationships a lot lately. I’m not entirely sure why, but I’m thinking it has something to do with me traveling and spending most of my days more than 2,000 miles away from my family and most of my friends. The distance makes you not take your relationships for granted. Also, in the last few months, I’ve had a few friends get married, engaged, and, yes, divorced.
Naturally, whenever I hear that someone is getting married—or divorced—I always think about how this affects their taxes.
OK, I am usually thinking about how virtually everything affects someone’s taxes.
I can’t—and don’t want to—help it. It’s a problem, and my clients pay good money for it.
Depending on your situation and income level, getting married before the end of 2013 could either save you money or it could cost you. This is what people in my profession like to call the marriage penalty or, if you’re saving money, the marriage bonus. The difference between the two depends on the income level of each spouse. Usually there’s a bonus if one spouse has significantly less income than the other, but a penalty if they both have roughly the same amount of income.
First, some Excel tables that’ll help understand how I came up with the amounts below—and, because, you know, accountants like Excel.
Let’s say Dan and Jessica get married in 2013. Jessica will have taxable income of $140,000 in 2013 and Dan will have $25,000. If they file jointly, their total tax on a combined income of $165,000 is $33,665.50.
However, if they were unmarried and filed as single individuals, Dan’s tax would be $3,303.75, while Jessica’s tax would be $32,493.25 for a combined tax of $35,797.
Filing jointly would save them $2,131.50.
Now, let’s look at how this would differ if they both had $140,000 in taxable income for a combined taxable income of $280,000.
If they were married and filed jointly, their combined tax would be $68,713. However, if they were unmarried and filed as single individuals, then their combined tax would be $64,986.50, which saves them about $3,726.50.
In either of these situation, if they plan correctly, they could save enough to pay for their honeymoon or at least the flights to their destination.
Besides the tax itself, there are phaseout levels that should be considered as well. For example, the new 3.8% medicare surtax applies to the lesser of net investment income or modified adjusted gross income over a threshold. If you’re single, that threshold is $200,000. However, if you’re married, that threshold increases to only $250,000. Two single individuals would get a combined exclusion of $400,000—$150,000 more than their married counterpart.
There’s also the personal exemption that starts phasing out at different thresholds. The exemption is reduced by 2% for every $2,500 of income over the threshold. If you’re married, the exemption starts phasing out at $300,000, while single individuals will see phaseouts once their income exceeds $250,000. This means that two single individuals will have a combined exclusion of $500,000, which is $200,000 more than married filers.
Chances are, if you’ve got a big wedding planned, it’s too late to change the date. Also, the amount you’ll save may not matter to you and you’d rather just marry the love of your life sooner than later. However, on the off-chance that you decide to change your wedding date because it will reduce your taxes, just don’t tell your fiancé that you heard any of this from me.
Oh, and before you ask, if you are married and not legally separated, then nope, you can’t file as single. You can, however, file as married filing separately, but that could present a whole other set of problems.