The Supreme Court’s decision in 2015 to allow same-sex marriage in all 50 states was unquestionably a watershed event in American culture. It also has some significant practical ramifications for same-sex couples, such as the right to pay federal taxes under the married label and filing status.
Domestic partnerships and civil unions, although legally recognized at the state level, are not marriages and do not qualify you to pay federal taxes as a married couple. This implies that if you are lawfully married, you can only utilize the marital designation for tax purposes.
The good news for most married same-sex couples is that the Supreme Court’s ruling will result in a lesser tax burden. Those at the very top and bottom of the wage scale, on the other hand, should be aware that this may not be the case for them. Their tax obligation may actually increase if they marry.
- Married couples may only file their federal income taxes in one of two ways: jointly or separately.
- Due to the marriage bonus, married couples with a gap in their wages will likely minimize the amount of taxes they pay by filing jointly.
- Couples with two high-income earners may see their tax bill rise if they file jointly, therefore they should file separately.
- Low-income earners, on the other hand, may see their tax bill rise if they file jointly due to restricted or decreased tax benefits for married couples.
Prior to 2013, people in a same-sex relationship had to file separate1040 forms with the Internal Revenue Service (IRS), declaring each as single. If they had a dependant, one of them may be considered the head of the home. However, in 2013, the IRS declared that same-sex couples may instead file a federal joint tax return. Since same-sex marriage became legal across the country, the number of couples submitting joint returns has grown. More than 250,000 same-sex couples filed joint tax returns in 2015, according to the Tax Policy Center.
If you get lawfully married before the end of the tax year, you will no longer be able to file as a single individual. This implies you must submit a joint or separate marital tax return. You can only file as single if you are in a domestic partnership, civil union, or are separated by court order—even if you are still not legally divorced.
The Marriage Bonus
What impact does marriage have on a couple’s tax situation? The difference may be modest for newlyweds earning about the same amount of money.
Consider a marriage in which both spouses make $40,000 in taxable income each year, for a total of $80,000. The estimate below compares filing solo tax returns for their 2022 income to filing as married filing jointly, which combines their income.
In 2022, a single filer earning $40,000 would be taxed as follows:
- The first $10,275 is subject to a 10% tax: ($10,275 * .10 = $1,027.50)
- The balance of $10,275 to $41,775 is taxed at 12%: ($29,725 * .12 = $3,567)
- $4,594.50 total ($1,027.50 + $3,567)
In 2022, a married filing jointly couple earning $80,000 would be taxed as follows:
- The first $20,550 is subject to a 10% tax: ($20,550 * .10 = $2,055)
- The balance above $20,550 to $83,550 is taxed at 12%: ($59,450 * .12 = $7,134)
- Total cost: $9,189 ($2,055 + $7,134).
If the pair had filed as singles, they would have paid $4,594.50 each, for a total of $9,189. Their taxes would have been $9,189 if they had filed as married filing jointly.
Couples with a greater pay discrepancy may qualify for a marriage bonus since they can average their earnings. With our progressive tax system, it may be sufficient to move the higher-income person into a lower tax category. Furthermore, the above example does not account for deductions such as IRA contributions or other variables that may lower taxable income.
The Marriage Penalty
Unfortunately, not everyone benefits from saying “I do” at tax time. In rare cases, being married might have the opposite impact. Two high-income individuals with comparable wages may be moved into a higher tax rate at times. This is due to the fact that the 37% federal tax rate for married couples filing jointly does not begin at double the income as the same bracket for singles. Although the 37% federal income tax rate applies to income above $539,900 for individuals in the 2022 tax year, it applies to income over $647,850 for married couples filing jointly.
If their combined income is high enough, wealthy couples may be subject to the Medicare surtax, which was implemented in 2013. For married couples filing jointly, the rate is 0.9% on incomes in excess of $250,000.
However, the marriage penalty does not simply effect the wealthy. The IRS may also punish newlyweds at the other end of the economic range. This is because adding together both spouses’ salaries may exclude them from the earned income credit (EIC), a tax break for low-income households. When spouses earn about the same amount of money, the penalty also occurs.
If married couples on the lower end of the income scale file jointly, they may miss out on tax incentives.
Source: The Tax Foundation
Figure 1.Most newlyweds will, if anything, benefit by filing as a married taxpayer. However, certain low- and high-income couples may face a marriage penalty if their salaries are comparable.
Same-sex couples, like other married taxpayers, may file in one of two ways. They might file as married filing jointly or married filing separately.
Couples may profit from filing a combined return since they may average their salaries. So, if one individual earns much more than the other, there is the possibility of a tax advantage. In addition, filing a joint 1040 is frequently the greatest method for married couples to reduce their taxable income.
Couples who want to raise a kid together have an additional incentive to file a combined tax return. It is, for example, the only way they may claim a credit or an exclusion for expenditures paid while adopting a child jointly. The maximum credit for adoptions is equal to the entire amount of qualifying adoption costs, which is $14,890 in 2022, up from $14,440 in 2021.
In general, this is the strategy that permits taxpayers to claim the child and dependent care tax credit. (There are few exceptions for legally separated spouses.) Depending on their income, the couple may be eligible to claim a credit of up to 35% of their qualifying expenses.
Other credits available include the previously mentioned EIC as well as the American opportunity and lifelong learning credits (LLCs), all of which serve to reduce the cost of higher education. The Lifetime Learning Credit, however, is phased away for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns) beginning in tax year 2022.
Not to mention the expense of filing itself. You just have to pay for the preparation of one tax form whether you use a tax preparer or tax software.
That’s not to imply that same-sex couples should never file separately. For instance, one spouse may want to deduct some significant out-of-pocket medical expenditures. Because the IRS only permits you to deduct healthcare expenditures that exceed 7.5% of your adjusted gross income, qualifying for the deduction would be simpler if just one person’s income was involved.
Please keep in mind that the source of cash utilized to cover medical bills is critical when computing medical deductions. According to the Internal Revenue Service, “If you and your spouse reside in a noncommunity property state and file separate returns, you may only include the medical expenditures that you actually paid. Unless you can establish otherwise, any medical expenditures paid out of a joint checking account in which you and your spouse have equal interest are presumed to have been paid equally by both of you.”
In addition, if you file a joint return, you are liable for your spouse’s tax burden. As a result, even if the other person earned all or most of the money that year, you might be liable for any missing payments, under-reporting issues, or penalties.
The Bottom Line
Married same-sex couples are now faced with the same decision as other spouses: whether to file their 1040 forms jointly or separately. While a combined return usually results in a smaller tax payment, it never hurts to run the numbers both ways before sending your form to the IRS.
It’s also worth noting that the IRS enables you to submit amended returns for up to three years after you filed your initial return or within two years after you paid the tax, whichever comes first. So, even if you filed in a method that was not financially advantageous to you, you may still be able to submit an amended return and enjoy the financial benefits owed to you.
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