Tax planning tips for newly married couples

IRS tax checklist for newlyweds

Congratulations on your marriage. Tying the knot is a wonderful occasion, but it does create some tax planning opportunities that a newly married couple should consider. An overview of Internal Revenue Service (IRS) tax tips and other tax planning considerations specific to newly married couples is provided below.

1. Name and address changes
   Name.When a name changes through marriage, it is important to report that change to the Social Security Administration (SSA). 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, taxpayers should file Form SS-5, Application for a Social Security Card.
   Address. If marriage means a change of address, the IRS and U.S. Postal Service need to know. To do that, people should send the IRS Form 8822, Change of Address. Taxpayers should also notify the postal service to forward their mail by going online at USPS.com or their local post office. Clients of Keiter can have this form prepared on their behalf if we are notified of the change of address.
2. 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 additional Medicare tax. They can use the IRS Withholding Estimator on IRS.gov to help complete a new Form W-4. See Publication 505, Tax Withholding and Estimated Tax for more information. See information on the marriage penalty below.
3. 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.
   *Note:  If a couple is married as of December 31, the law says they are married for the whole year for tax purposes.

Additional tax considerations for newlyweds

The marriage penalty related to tax rates

As discussed above, a newly married couple will most likely be filing tax returns using the married filing joint filing status. The tax return will include the income of both spouses on one return. The combined tax on a married filing joint tax return is generally more than the combined tax that both spouses would pay if they could file tax returns using the single filing status. This can cause quite a surprise when it comes time to file your tax returns as a married couple.

It is a good idea to review your federal and state tax withholdings from your employer after you get married. Consideration should be given to increasing your tax withholdings to reduce potential surprise balances due when filing your return.

Standard deduction vs. itemized deductions

The standard deduction somewhat offsets the marriage tax rate penalty. The standard deduction for a married couple for 2023 is $27,700; an amount that is twice the standard deduction amount for a single individual.

However, if more beneficial, a married couple can claim their actual itemized deductions. Under today’s tax rules, a married couple can claim itemized deductions for mortgage interest, state and local taxes (capped at $10,000 per year) charitable contributions and in some cases medical expenses.

If charitably inclined, consideration should be given to bunching your charitable contributions into every other tax year if this technique results in itemized deductions that are greater than the standard deduction. In the years when you do not make charitable contributions, you can claim the standard deduction. When timing your contributions, keep in mind that in 2026, the standard deduction is set to revert back to the lower amounts that were in effect before the Tax Cuts & Job Act.

Sale of primary residence

At the time of marriage, each spouse may own their own personal residence. As a result of the marriage, one spouse may sell their former residence, or both spouses may sell their residences and buy a new home together.

The first $250,000 of gain on the sale of each individual residence is excluded from income taxation if the house was owned by the taxpayer and used as their principal residence for two out of the last five tax years. This exclusion will increase to $500,000 if the marital residence meets the same two out of five tax year rule. The marital residence does not have to be owned by both spouses; it just needs to have been the principal residence of both spouses.

In some cases, one or both spouses may delay the sale of their former residence. However, you need to take into account the two out of five-tax year rule in planning for the sale of former residence, so you do not lose your gain exclusion.

Health insurance

As a newly married couple, one of your biggest expenses could be the cost of health insurance. If each spouse has current coverage through their employer, it may be more beneficial for the couple if each spouse maintains that coverage. However, depending on the coverage options and plans allowed by the employers, it may be more beneficial for both the employee and spouse to be on one health insurance plan.

Due to the current cost of health insurance, it is very important to understand the coverage options provided under each employer’s health plan including health saving accounts and high deductible health plans to determine the option that will be most beneficial.

Newlyweds should work with their tax advisor to ensure all tax savings and planning opportunities are leveraged for their specific situation. If you are a newlywed and have questions about these tax or other tax considerations, reach out to your Keiter Opportunity Advisor.

Source

IRS TAX TIP 2020-118