August 17, 2017
Tips for Recently Married Taxpayers
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On December 22, 2017, The Tax Cuts and Jobs Act was signed into law. The information in this article predates the tax reform legislation and may not apply to tax returns starting in the 2018 tax year. You may wish to speak to your tax advisor about the latest tax law. This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
Article Highlights:
- Social Security Administration
- IRS Notification
- USPS Notification
- Withholding & Estimated Payments
- Revising W-4s
- Insurance Marketplace
- Filing Status
- New Spouse’s Past Liabilities
- Capital Loss Limitations
- Spousal IRA
- Deductions
- Impact on Parents’ Returns
- Notify the Social Security Administration - Report any name change to the Social Security Administration so that your name and SSN will match when you file your next tax return. Informing the SSA of a name change is quite simple and can be done on the SSA’s website. If you don’t have Internet access, call 800-772-1213 or visit a local office. Your income tax refund may be delayed if it is discovered that your name and SSN don’t match at the time your return is filed.
- Notify the IRS - If you have a new address, you should notify the IRS by completing and sending in Form 8822, Change of Address.
- Notify the U.S. Postal Service - You should also notify the U.S. Postal Service of any address change so that the IRS or state tax agency correspondence can be forwarded to your correct address.
- Review Your Withholding and Estimated Tax Payments - If both you and your new spouse work, your combined income may place the two of you in a higher tax bracket, and you may have an unpleasant surprise when you file as married.The combined higher incomes can also cause you to lose certain tax benefits available to individuals in lower tax brackets, such as the child care credit if either or both of you have a child and you both work (because a lower percentage of expenses applies as income increases) and loss or reduction of the earned income tax credit.
On the other hand, if only one of you works, filing jointly with your new spouse can provide a significant tax benefit, enabling you to reduce your withholding or estimated payments. In either case, it may be appropriate to review your withholding (W-4 status) and estimated tax payments, if any, to make sure that you are not going to be under-withheld and that you don’t set yourself up to receive bad news for the next filing season.
- Notify the Insurance Marketplace - If either or both of you are obtaining health insurance through a government health insurance marketplace, your combined incomes and change in family size could reduce the amount of the premium tax credit to which you would otherwise be entitled, requiring payback of some or all of the credit applied in advance to reduce your monthly premiums. More complicated yet, if either or both of you are included on your parents’ Marketplace policy, those insurance premiums must be allocated from their return to your return.
- Filing Status - For tax purposes, an individual’s filing status is determined on the last day of the tax year. Thus, regardless of when you got married during the year, you and your new spouse will be treated as married for the entire year and, therefore, can no longer file as single individuals. Your options are to file using the married joint status, combining your incomes and allowed deductions on one return, or to file two separate returns using the married filing separate status. The latter is not the same as the single status you may have used in the past. Filing separately in community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin) can be complicated. Also, the terms of a prenuptial agreement, if you have one, can affect your filing status choice.
- New Spouse’s Past Liabilities - If your new spouse owes back taxes, past state income tax liabilities or past-due child support or has unemployment debts to a state, the IRS will apply your future joint refunds to pay those debts. If you are not responsible for your spouse’s debt and do not want your share of any tax refund used to pay your spouse’s past debts, you are entitled to request your portion of the refund back from the IRS by filing an “injured spouse” allocation form. As an alternative, you can file separately using the “married filing separate” filing status; however, that generally results in higher overall tax.
- Capital Loss Limitations - When filing as unmarried, each individual can deduct up to $3,000 of capital losses on their tax return for a possible combined total of $6,000, but a married couple is limited to a single $3,000 loss and if they file married separate, then the limit is $1,500 each.
- Spousal IRA - Spousal IRAs are available for married taxpayers who file jointly where one spouse has little or no compensation; the deduction is limited to the smallest of 100% of the employed spouse’s compensation or $5,500 (2017) for the spousal IRA. That permits a combined annual IRA contribution limit of a certain amount (up to $11,000 for 2017). The maximum amount is $6,500 if you or your spouse is age 50 or older ($13,000 if you are both 50+). However, the deduction for contributions to both spouses’ IRAs may be further limited if either spouse is covered by an employer’s retirement plan.
- Deductions - The standard deduction in 2017 for a married couple (both spouses under age 65) is $12,700 and for a single individual is $6,350. So if both of you have been taking the standard deduction, there is no loss in deductions. However, if in past years one of you had enough deductions to itemize and the other took the standard deduction, after marriage and filing jointly you would either have to take the joint standard deduction or itemize, which likely will result in a loss of some amount of deductions.
- Impact on Parents’ Returns - If your parents have been claiming either of you as a dependent, they will generally lose that benefit. In addition, if you are in college and qualify for one of the education credits, those credits are only deductible on the return where your personal exemption is used. That generally means your parents will not be able to claim the education credits even if they paid the tuition. On the flip side, unless your income is too high, you will be able to claim the credit even though your parents paid the tuition.
If you need assistance in dealing with any of these issues or have questions about the impact of your new marital status on your taxes, please call this office.
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