Getting married changes the way you file your taxes, and not always to your benefit. Many people refer to the marriage tax or marriage penalty, for example. But, depending on whether you file jointly or separately, you can also reap benefits by taking advantage of the common tax deductions for married couples.
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As you begin a family, you might qualify for additional deductions and credits, such as the earned income tax credit for taxpayers with dependents or children. Understanding this can help you claim every tax credit and benefit for which you qualify.
Last updated: Jan. 14, 2021
1. Understand the Standard Deduction
Married filers have three filing statuses available:
Married filed jointly
Married filing separately
Head of household
The standard deduction depends on which filing status you use. Choosing the married filing jointly status might be a good choice — even if one spouse is not working — because the IRS extends some tax benefits to joint filers that aren’t available to those who file individually. This results in a marriage tax break.
However, even if married filing jointly has been your best choice in the past, don’t assume it will always be that way. Do the calculations each year to determine whether filing separately or jointly will give you the best tax result. Changes in your personal circumstances or new tax laws might make a new filing status more desirable. What was once a marriage tax break might turn into a reason to file separately or vice versa.
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2. File Jointly To Deduct Education Expenses
Married students can deduct education expenses, but you’ll need to file jointly to qualify. The credits you might qualify for are the American opportunity tax credit and the lifetime learning credit. The AOTC is worth up to $2,500 of your qualifying education expenses, and because it’s refundable, you can get money back if your credit is more than your total tax liability. The lifetime learning credit is worth 20% of your first $10,000 in education expenses, up to $2,000 maximum.
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3. Use Tax Breaks for High Medical Expenses
You can also deduct qualifying medical expenses from your taxes. You may claim expenses that exceed 7.5% of your adjusted income. Keep copies of your receipts, and make sure you only claim qualifying expenses. Qualifying expenses can include doctor visits, hospital stays, physician-ordered weight loss treatment programs, prescription glasses and prescription drugs.
4. Consider the Marriage Penalty
You might pay a marriage penalty when you file jointly if you and your spouse earn the same amount of income, especially if your earnings are high and you have children. The penalty results from your combined income pushing you into a higher tax bracket. This bump is commonly referred to as the married couple tax. But you might be off the hook for it if one person makes significantly less than the other because tax benefits tend to phase out as income increases — especially if the benefits are related to deductions for children.
The Tax Cuts and Jobs Act eliminated the marriage penalty for households in most income brackets, but it could still affect those in higher income brackets.
5. Examine the Child Tax Credit and Use the Child and Dependent Care Tax Credit
Parents with dependent children might be eligible for the child tax credit. The child tax credit for 2021 is $2,000 per qualifying child, and taxpayers with less tax liability might get the remainder refunded to them. The income threshold at which the tax credit begins to phase out is $400,000 if married filing jointly — and $200,000 if married filing separately.
The credit for other dependents allows you to claim qualifying expenses for dependent care, even if the dependent doesn’t qualify for the child tax credit. You can claim a maximum of $500 per year for one dependent.
Married tax filers might be eligible for the child and dependent care credit if they paid expenses for the care of a qualifying individual so that they could work or look for work. The rules for who can be a qualifying dependent and who can be a care provider are strict. This credit is not available if you file separately.
6. Take Advantage of the Spousal Individual Retirement Account for Stay-at-Home Parents
You typically must have earned income to qualify for an IRA, but filing jointly lets you open a spousal IRA, allowing the stay-at-home parent to contribute to their retirement savings even if they don’t earn money during the year. This is one of the tax loopholes for married couples. The contribution limit for 2020 and 2021 is $6,000, or $7,000 if you’re 50 or over. You can open either a traditional or Roth IRA, but only traditional IRA contributions are deductible.
7. Know When To File Separately
Despite the tax perks married joint filers receive, filing individually is a better option if it reduces your total tax liability. It can also be beneficial when one spouse has a tax liability for which the other spouse doesn’t want to be responsible, or if one spouse might have a refund seized due to unpaid child support or another debt.
Sometimes it makes sense to file separately, said Josh Zimmelman, owner of Westwood Tax & Consulting, a New York-based accounting firm. “A joint return means that your finances are linked, so you’re both liable for each other’s debts, penalties and liabilities. So if either of you has some financial issues or baggage, then filing separately will better protect your spouse from your bad record, or vice versa,” he said.
If you file jointly, you can’t later uncouple yourselves to file as married filing separately for that year’s tax return. “On the other hand, if you file separate returns and then realize you should have filed jointly, you can amend your returns to file jointly within three years,” Zimmelman said.
A related consideration is whether to take the standard deduction or itemize your deductions. You and your spouse must file the same way — either itemize or take the standard deduction. Carefully consider this option because you might lose some tax deductions and credits.
8. Consider Using the Earned Income Tax Credit
The earned income tax credit is one of the tax breaks for married couples with low income. It’s only available to taxpayers who have earned income for the year. To qualify without children, you must make less than $21,710 while married filing jointly — but this amount increases with each child you have — and it tops off at $56,844 for three or more children. You can claim previous years’ credits if you have not claimed them before by amending those previous years’ tax returns.
9. Factor In the Effects of Divorce on Taxes
Your tax situation is likely to change if you are getting a divorce. Divorcing couples must determine which spouse will claim the child tax credit and the child and dependent care credit, for example. These usually go to the parent who has custody of the child.
“If your child lives with you more than half the year, and you’re paying at least 50% of their support, then you should claim them as your dependent,” said Zimmelman. In cases of shared custody and support, you have a few options. “You might consider alternating every other year who gets to claim them,” he said. Or if you have two children, each parent can decide to claim one child, he said.
The IRS considers you to be married if you were lawfully wed on the last day of the tax year. For example, if you tied the knot at any time in the past and were still married on Dec. 31, 2020, you were married to your spouse for the entire tax year in the eyes of the IRS. The laws of the state in which you live determine whether you were married or legally separated for the tax year.
Even if you’re married for the full tax year, the IRS might consider separated couples “unmarried” for tax purposes if you are not divorced but have a legally binding separation agreement, or if you and your spouse have lived apart for the last six months or more of the tax year. This essentially creates a married filing single status that makes you eligible to file as head of household if you qualify, thereby reducing your tax rate.
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