Marriage Tax Penalty Forum

[mickey0004]

When I got married I went from getting a 2k refund check to owing 1k in taxes. I bought a house the same year we got married too. Switching to itemized deductions and deducting mortgage interest wasn't enough (probably because interest rates are so low). #firstworldproblems

You were withholding too much before you got married. I generally calculate taxes at mid year and adjust WH for the rest of the year to a specific $ amount to avoid much of a refund or tax due. (Of course this is dicier if you're going to have some variable income that you can't predict. Just be sure your WH is at least 100% of last year's tax due and you're covered against any penalties).

Can you explain the "100% of last year's tax due" a bit more? I also adjust my WH periodically, based on my own calculations of how much federal tax I owe. Thanks in advance.

[BVest]

To avoid penalties for withholding too little, your WH must be the lesser of 90% of your tax due for the year in which you're withholding or 100% of your tax due for the previous year. If you're not going to hit either of those thresholds, then you need to do estimated vouchers or you might face penalties. There are also rules about how it's distributed throughout the year (but if you're withholding too much and then reduce your withholding, that's not a problem since that's in the IRS's favor).

For specific questions about your taxes, of course, consult a tax preparer.

http://www.irs.gov/taxtopics/tc306.html

[wingding]

When I got married I went from getting a 2k refund check to owing 1k in taxes. I bought a house the same year we got married too. Switching to itemized deductions and deducting mortgage interest wasn't enough (probably because interest rates are so low). #firstworldproblems

You were withholding too much before you got married. I generally calculate taxes at mid year and adjust WH for the rest of the year to a specific $ amount to avoid much of a refund or tax due. (Of course this is dicier if you're going to have some variable income that you can't predict. Just be sure your WH is at least 100% of last year's tax due and you're covered against any penalties).

Can you explain the "100% of last year's tax due" a bit more? I also adjust my WH periodically, based on my own calculations of how much federal tax I owe. Thanks in advance.

It's more nuanced than that. IIRC, if your adjusted income increased from last year, then you need to have paid at least 90% of your total tax bill before taxes are due, but if your income decreased, you need to pay 100%. However, once you're over a certain income that changes.

edit: scooped

[wingding]

also, for anyone complaining about the marriage penalty, you should calculate your taxes twice: Married filing jointly vs Married filing separately

[BVest]

also, for anyone complaining about the marriage penalty, you should calculate your taxes twice: Married filing jointly vs Married filing separately

There are very few advantages to filing MFS, unless you think your spouse is lying. (Not that it's not possible to save money that way, just that it's very rare.)

[ookoshi]

When I got married I went from getting a 2k refund check to owing 1k in taxes. I bought a house the same year we got married too. Switching to itemized deductions and deducting mortgage interest wasn't enough (probably because interest rates are so low). #firstworldproblems

You were withholding too much before you got married. I generally calculate taxes at mid year and adjust WH for the rest of the year to a specific $ amount to avoid much of a refund or tax due. (Of course this is dicier if you're going to have some variable income that you can't predict. Just be sure your WH is at least 100% of last year's tax due and you're covered against any penalties).

Sure, I understand that in the sense that I'm giving the government an interest free loan on the over payment, and I'm giving up opportunity cost in not having the cash in the meantime. But the way I look at it is this, I'm going to use the money once a year for something big. if I altered my WH to attempt to more accurately reflect my tax liability, what would the result be? I don't get all of the money up front, I get it over a 12 month period, and my plan is to spend it at the end of the 12 months, so at best I would be doing what, putting it in a savings account or other short term low risk vehicle? It's just not worth my time to micromanage that for a few bucks.

[chem!]

There's not much you can do, the tax code sucks if you're married and have a pretty wide disparity in income.

Actually, it's the opposite. In the aggregate, a couple will see a tax decrease when they get married if one spouse earns significantly more. If both spouses earn the same, their aggregate tax bill goes up.

But yeah, there is not all that much tax planning you can do if you are a regular employee. Most of the tax strategies that would apply to you are savings/retirement related.

I had the opposite problem because my spouses income was just enough to bump us up into another tax bracket.

That's what our situation is, too.

[DELG]

also, for anyone complaining about the marriage penalty, you should calculate your taxes twice: Married filing jointly vs Married filing separately

Yeah didn't actually help

[nealric]

There's not much you can do, the tax code sucks if you're married and have a pretty wide disparity in income.

Actually, it's the opposite. In the aggregate, a couple will see a tax decrease when they get married if one spouse earns significantly more. If both spouses earn the same, their aggregate tax bill goes up.

But yeah, there is not all that much tax planning you can do if you are a regular employee. Most of the tax strategies that would apply to you are savings/retirement related.

I had the opposite problem because my spouses income was just enough to bump us up into another tax bracket.

That's what our situation is, too.

Lot of misconceptions about the marriage penalty and marginal tax rates.

"Just" bumping you into another tax bracket means little. Suppose all income from 0-$100k gets taxed at $30% and all income from $100k-$200k gets taxed at 40%. If you make $80k and your spouse makes $25k, it's true that your spouse bumps you into another tax bracket, but only that extra $5k is taxed at 40%- NOT your entire income. The actually tax increase from being in the next bracket is only $500 in that scenario (and the real rates don't jump that steeply). Being one dollar over into the next bracket would have literally zero impact on your overall tax burden. The only exception would be if that extra dollar pushes you over limits for certain welfare programs (like medicaid/food stamps/EITC), but I'm guessing that isn't going to apply to most people on this board.

Additionally, there are separate (more generous) brackets for married filing jointly, so getting married pushes some of your income into a lower bracket. There is a significant marriage bonus if you have a stay at home spouse because all your income gets put in the more generous brackets and the spouse doesn't push up your aggregate income. However, you get hammered if you both make the same because having to add your incomes together is not outweighed by the more generous brackets.

Double biglaw in NYC or California is pretty much the worst possible tax situation you could be in. The biglaw tax situation is made worse because it's all ordinary income, but few tax free benefits compared to corporate jobs (no 401k match, pension, etc.). I'm guessing married biglaw partners in NYC pay the highest effective rates of pretty much anyone in the country.

[kalvano]

Lot of misconceptions about the marriage penalty and marginal tax rates.

"Just" bumping you into another tax bracket means little. Suppose all income from 0-$100k gets taxed at $30% and all income from $100k-$200k gets taxed at 40%. If you make $80k and your spouse makes $25k, it's true that your spouse bumps you into another tax bracket, but only that extra $5k is taxed at 40%- NOT your entire income. The actually tax increase from being in the next bracket is only $500 in that scenario (and the real rates don't jump that steeply). Being one dollar over into the next bracket would have literally zero impact on your overall tax burden. The only exception would be if that extra dollar pushes you over limits for certain welfare programs (like medicaid/food stamps/EITC), but I'm guessing that isn't going to apply to most people on this board.

Additionally, there are separate (more generous) brackets for married filing jointly, so getting married pushes some of your income into a lower bracket. There is a significant marriage bonus if you have a stay at home spouse because all your income gets put in the more generous brackets and the spouse doesn't push up your aggregate income. However, you get hammered if you both make the same because having to add your incomes together is not outweighed by the more generous brackets.

Double biglaw in NYC or California is pretty much the worst possible tax situation you could be in. The biglaw tax situation is made worse because it's all ordinary income, but few tax free benefits compared to corporate jobs (no 401k match, pension, etc.). I'm guessing married biglaw partners in NYC pay the highest effective rates of pretty much anyone in the country.

Moving up to another tax bracket means a lot more when you were only about $2500 shy of it off of one income. Add in another income and everything after that $2500 is taxed higher. In our case, it meant about $45,000 in income was taxed at a higher rate. I think that was the breakdown, I'd have to go back and look, but all I know is I've gone from getting money back to having to write a check.

[chem!]

I know how the tax brackets work. There are other factors at play in our household, like the child tax credit, etc. I realize others are in different situations, and I wasn't disputing what you said.

Also, what kalvano just said in his first three sentences.

[silenttimer]

I know how the tax brackets work. There are other factors at play in our household, like the child tax credit, etc. I realize others are in different situations, and I wasn't disputing what you said.

Also, what kalvano just said in his first three sentences.

And you also lose an additional deduction. For example, if one person already owns a house and takes itemized deduction and the other persone doesn't have enough to take itemized and therefore takes a standard deduction, after you get married you would lose that additional standard deduction.

[84651846190]

also, for anyone complaining about the marriage penalty, you should calculate your taxes twice: Married filing jointly vs Married filing separately

It's always better to do married filing jointly. You will always pay either the same or higher taxes if you do married filing separately. Check out the current tax brackets and do a few hypos. You'll see that I'm right: http://www.bankrate.com/finance/taxes/tax-brackets.aspx.

People are complaining about the tax rate for single people vs. the tax rate for MFJ, not the tax rates for MFJ vs. MFS.

[BVest]

also, for anyone complaining about the marriage penalty, you should calculate your taxes twice: Married filing jointly vs Married filing separately

It's always better to do married filing jointly. You will always pay either the same or higher taxes if you do married filing separately. Check out the current tax brackets and do a few hypos. You'll see that I'm right: http://www.bankrate.com/finance/taxes/tax-brackets.aspx.

People are complaining about the tax rate for single people vs. the tax rate for MFJ, not the tax rates for MFJ vs. MFS.

Where MFS makes a difference is where one spouse has an unusual deduction, such as casualty loss or major medical bills. (For example if each member of couple makes $200k and one member has $40k in medical expenses, those medical expenses would not meet the 10% floor for deductibility if filed jointly with $400k income but would if they each file separately with their $200k incomes).

[84651846190]

also, for anyone complaining about the marriage penalty, you should calculate your taxes twice: Married filing jointly vs Married filing separately

It's always better to do married filing jointly. You will always pay either the same or higher taxes if you do married filing separately. Check out the current tax brackets and do a few hypos. You'll see that I'm right: http://www.bankrate.com/finance/taxes/tax-brackets.aspx.

People are complaining about the tax rate for single people vs. the tax rate for MFJ, not the tax rates for MFJ vs. MFS.

Where MFS makes a difference is where one spouse has an unusual deduction, such as casualty loss or major medical bills. (For example if each member of couple makes $200k and one member has $40k in medical expenses, those medical expenses would not meet the 10% floor for deductibility if filed jointly with $400k income but would if they each file separately with their $200k incomes).

True, but these situations rarely apply to the vast majority of filers.

[XxSpyKEx]

Lot of misconceptions about the marriage penalty and marginal tax rates.

"Just" bumping you into another tax bracket means little. Suppose all income from 0-$100k gets taxed at $30% and all income from $100k-$200k gets taxed at 40%. If you make $80k and your spouse makes $25k, it's true that your spouse bumps you into another tax bracket, but only that extra $5k is taxed at 40%- NOT your entire income. The actually tax increase from being in the next bracket is only $500 in that scenario (and the real rates don't jump that steeply). Being one dollar over into the next bracket would have literally zero impact on your overall tax burden. The only exception would be if that extra dollar pushes you over limits for certain welfare programs (like medicaid/food stamps/EITC), but I'm guessing that isn't going to apply to most people on this board.

Additionally, there are separate (more generous) brackets for married filing jointly, so getting married pushes some of your income into a lower bracket. There is a significant marriage bonus if you have a stay at home spouse because all your income gets put in the more generous brackets and the spouse doesn't push up your aggregate income. However, you get hammered if you both make the same because having to add your incomes together is not outweighed by the more generous brackets.

Double biglaw in NYC or California is pretty much the worst possible tax situation you could be in. The biglaw tax situation is made worse because it's all ordinary income, but few tax free benefits compared to corporate jobs (no 401k match, pension, etc.). I'm guessing married biglaw partners in NYC pay the highest effective rates of pretty much anyone in the country.

So are you actually better off just not getting married at all (i.e. single filing for both people)? If so, then why file for a marriage license at all until one of you is close to death?

[BVest]

So are you actually better off just not getting married at all (i.e. single filing for both people)? If so, then why file for a marriage license at all until one of you is close to death?

Well, that's hard to predict often, anticipates no divorce, and runs the risk of the IRS going after you for evasion if they can prove a common law marriage.

[DELG]

So are you actually better off just not getting married at all (i.e. single filing for both people)? If so, then why file for a marriage license at all until one of you is close to death?

Well, that's hard to predict often, anticipates no divorce, and runs the risk of the IRS going after you for evasion if they can prove a common law marriage.

is common law marriage even a thing anymore

i want a divorce

[ookoshi]

So are you actually better off just not getting married at all (i.e. single filing for both people)? If so, then why file for a marriage license at all until one of you is close to death?

Well, that's hard to predict often, anticipates no divorce, and runs the risk of the IRS going after you for evasion if they can prove a common law marriage.

is common law marriage even a thing anymore

i want a divorce

As is the usual answer in law school. It depends, jurisdictional split (by state).

[XxSpyKEx]

So are you actually better off just not getting married at all (i.e. single filing for both people)? If so, then why file for a marriage license at all until one of you is close to death?

Well, that's hard to predict often, anticipates no divorce, and runs the risk of the IRS going after you for evasion if they can prove a common law marriage.

is common law marriage even a thing anymore

i want a divorce

As is the usual answer in law school. It depends, jurisdictional split (by state).

I think it's pretty much gone just about everywhere.

[XxSpyKEx]

So are you actually better off just not getting married at all (i.e. single filing for both people)? If so, then why file for a marriage license at all until one of you is close to death?

Well, that's hard to predict often, anticipates no divorce, and runs the risk of the IRS going after you for evasion if they can prove a common law marriage.

Hmm. Note to self: don't get married officially.

[Anonymous User]

biglaw/biglaw: gaped

Official marriage for biglaw/med: equally gaped? Or potentially a good idea since my spouse will be making double my salary after residency?

God I should learn more about tax.

[XxSpyKEx]

biglaw/biglaw: gaped

Official marriage for biglaw/med: equally gaped? Or potentially a good idea since my spouse will be making double my salary after residency?

God I should learn more about tax.

It sounds like the total taxes the both of you will pay would be more than the total taxes the both of you pay filing individually. But it's probably still a great idea, especially if you live in a community property state because you'll be entitled to 25% of his salary. Marriage seems to be pretty much a losers game with the higher income spouse getting ass raped for life upon divorce.

[BVest]

Well, that's hard to predict often, anticipates no divorce, and runs the risk of the IRS going after you for evasion if they can prove a common law marriage.

is common law marriage even a thing anymore

i want a divorce

As is the usual answer in law school. It depends, jurisdictional split (by state).

I think it's pretty much gone just about everywhere.

It's still around in Texas and several other reasonably-sized states with total populations of about 40 million people. (There are some other big states that have residual CLM -- if prior to X date -- such as Ohio, Penn and Georgia that I'm not counting). In Texas -- and I presume in the other states that have it -- the only ways to dissolve a CLM are death or divorce.

[BVest]

for life upon divorce.

Not in states that limit alimony amount/duration.