Married couples share many things in their life as a unit. Regarding taxes, most assume that joint filing maximizes savings, but that isn’t always true. Various factors influence filing strategy, including income, deductions, and individual tax circumstances. Tax decisions not only impact immediate savings but also the big financial picture. Read on to learn some tips for smart filing to help you decide whether to go stag to the tax party or as a couple.
Filing Options for Married Couples
Before getting into the financial nitty-gritty, couples must determine if joint filing is an option. A couple’s marital status as of December 31 of the tax year dictates eligibility. Couples at year-end have two filing options:
- Married Filing Separately
- Married Filing Jointly
The Advantages of Joint Filing
Married couples who file jointly can benefit from various tax deductions and credits not generally available to those filing separately. These credits can reduce taxable income and increase refunds for married couples. Here are a few bonuses joint filers can enjoy:
- Student loan interest deduction: Filers, with a modified Adjusted Gross Income (AGI) of $155,000 or less, may deduct the lesser of $2,500 or the interest paid on a qualified school loan during the year.
- Education credits: The American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) are provisions of the federal tax code that help taxpayers reduce their taxes to offset higher education costs.
- Child and Dependent Care Credit: Couples caring for children under 13 and dependents with disabilities can receive a credit of up to $2100.
- Earned Income Credit: This benefit applies to low-to-moderate-income taxpayers who could qualify for a credit of up to $7,830 on 2024 tax returns filed in 2025.
The Financial Responsibility of Filing Jointly
With the positives, couples should also be aware of the scenarios where filing jointly could be a detriment, for example, if either spouse owes state or federal back taxes, delinquent child support payments, or student loans in default. In these situations, the IRS could offset a couple’s joint tax refund to cover one or more outstanding balances. Couples who file jointly should also be aware that by doing so, they incur “joint and several liability.” This means both partners are responsible for amounts due on previously filed joint returns, including underpayments, interest, and penalties. Joint and several liability applies even after divorce on joint returns, so additional steps must be taken to free a spouse or former spouse from financial obligation.
Considerations for Filing Status
- Itemizations: Couples who file separately must agree on itemizing deductions and act in kind. If one itemizes deductions, the other must as well. Itemizing is only useful if one’s spouse’s deductions are significantly higher than the standard deduction. For those who file jointly, the standard deduction ($29,200 in 2024) outweighs the financial benefit of itemized deductions for most. Exceptions exist, such as if one spouse has substantial deductions, like medical expenses.
- Income disparities: The income gap between spouses can have significant tax ramifications. The combined income thresholds for married tax brackets are nearly double those of single filers. Couples with one high-earning and one low-earning income can benefit from filing jointly and landing in a lower tax bracket. For example, filing jointly can lower a tax bill if one spouse earns $55,000 annually and the other $8,000, situating them in the 12% tax bracket for joint earnings up to $94,300 in 2024. Separate filing would result in the higher-earning spouse moving to the 22% bracket and an increased tax rate on their income.
- State taxes: State and federal tax laws don’t always produce the same filing status advantages. Federal tax law encourages joint filing, but filing separately may offer greater benefits in some states. For instance, California and Texas split income equally between spouses, which affects tax liability differently than in states that do not.
To-Dos for Newlyweds
New married couples should take care of a few housekeeping items to avoid snags with the Internal Revenue Service (IRS).
- Update the Social Security Administration (SSA): If the marriage resulted in a name change, it is essential to notify the SSA to avoid confusion with the IRS, which could result in a rejected tax return. Couples can update their information through the SSA website.
- Notify IRS of address changes: To ensure that any important tax documents and notifications go to the right place, couples must notify the IRS of an address change. Couples can make the change when they file their federal income tax return or submit an IRS Form 8822, Change of Address form.
- Learn about homeowner exclusions: If both spouses own a home when they marry and sell one or both, they may be able to claim a gain exclusion on the home sale(s). See IRS Publication 523, Selling Your Home, for more information.
- Review your retirement plans: It’s prudent for couples to assess their retirement plans after they marry to optimize their savings strategy. Additionally, they may want to change their beneficiaries.
Taxes and tax planning are part of a robust financial strategy. Professional guidance from an experienced financial advisor can help couples avoid common mistakes and develop a plan that evolves with changing tax laws and regulations, maximizes returns, and minimizes tax burden.
At SHP Financial, we can help you make informed tax decisions in the context of your broader economic goals. We are part of a team of experts helping you decide the smartest way to file for your unique situation. Consulting with your tax professional should be done before implementing tax strategies. Let us help you develop and refine your Retirement Road Map® with tax-efficient methods that position you for future success. Contact us for a complimentary review of your finances today.
