Don't Mess With Taxes

Couple waiting to get married at San Francisco City Hall. (Photo by Brian Kusler via Flickr)

One good thing has come of my self-imposed pandemic lock down. Seeking a distraction from the news channels I usually watch, I'm finally getting more of my money's worth from our cable account.

I've been exploring the many channels the hubby and I typically tend to click right past. For the last week or so, I've tuned in to WEtv because of its run of CSI: Miami episodes. No judging, please!

Actually, the TV is more like a talking lamp (really!). The dramatic intonations of David Caruso's Horatio Caine character provide background noise while I work, peruse social media and catch up on stacked-up printed magazines, not always in that order. Again, no judging, please.

But a commercial actually got me to look at the screen today when the announcer asked, "Remember weddings? WEtv does. That's why we're bringing you a show guaranteed to comfort you in these uncertain times. … Forget Zoom. It's 'Zilla time!"

Yep, Bridezillas are back.

I never watched the show. I get enough of people behaving badly from news programs.

But the television ad reminded me of all the weddings that were postponed or reworked to accommodate COVID-19.

And that, of course, reminded me of all the tax matters that happy couples need to take care of whenever they finally tie the knot. Below are 10 tax tips for all newlyweds in coronavirus time and beyond.

1. Deal with dual withholding. A key post-vows tax move is adjusting your workplace withholding to account for your new joint filing status. This is particularly true where both spouses get wages. If you don't coordinate your taxes, specifically how much is taken out of each of your paychecks, then you could end up owing the Internal Revenue Service a lot at tax filing time. Even more distressing, especially as you're starting out a new life together, is that such withholding miscalculations could mean you owe Uncle Sam an underpayment penalty (and interest!), too.

The IRS says it's generally better for the higher-earning spouse to claim all the couple's allowances on his or her Form W-4, with the lower wage earner claiming zero. Such calculations also are critical if you and your new spouse might end up in a higher tax bracket and find yourselves subject to, among other things, the additional Medicare tax. The IRS' online withholding calculator is a good way for all taxpayers to make sure they get their withholding right.

2. Make sure everyone knows your new name. After marriage, some spouses change their surnames. If either, or both of the newlyweds legally change their name post-vows, they need to report it to the Social Security Administration (SSA). The IRS matches what's on your 1040 with the SSA data every filing season. It your new name on your post-wedding tax return doesn't match the official SSA info, it could delay any refund.

3. Update your address. Marriage also often means at least one spouse will have a new address. In these situations, the IRS and the U.S. Postal Service need to know. Newlyweds can file Form 8822, Change of Address, to update their mailing address with the IRS. They should notify the postal service to forward their mail by going online at USPS.com or by visiting their local post office.

Even if you didn't invite your boss to the wedding, he or she also needs to know about your address and/or name changes. That's the only way to ensure the Form W-2, Wage and Tax Statement, that your employer will send you early next year has the correct information.

4. Reassess tax-favored workplace benefits. When you get back from your honeymoon, stop by your workplace's benefits office to make adjustments. Since marriage is a major life changes, you'll be able to make necessary changes outside of the standard open enrollment period.

If both you and your spouse have jobs, review what benefits each workplace offers and coordinate them to get the maximize benefits, tax and otherwise. This is especially true if your marriage results in a blended family of dependent children.

Take special note of any flexible spending account (FSA) that you or your spouse have. You need to assess how these tax-preferred medical accounts fit into your new lifestyle and where changes need to be made.

5. Review your health care options. Speaking of health care, if you get medical coverage through the Affordable Care Act's (aka Obamacare) Health Insurance Marketplace, aka the exchange, or a state marketplace instead of through your job, you definitely need to review that in light of your new marital status. You might be eligible for or now make too much combined income to qualify for the premium tax credit (PTC).

Other changes to your household, such as family size if your marriage also created a new blended family with minor, dependent children, also could affect the tax credit amount available to you. If you get advance PTC payments, you definitely need to report your life changes to your marketplace ASAP, as this can affect any tax refund or the amount of tax you owe.

6. Consider the charitable side of marriage. Did you use a nonprofit's hall to exchange your vows and made a donation to do so? It could be a tax deduction on your first joint return next year. Donating excess wedding food or favors also could provide a tax break. My post on tax-smart ways to give back on your wedding day has additional charitable ideas in connection with your nuptials.

7. Evaluate your filing status. While your wedding date is important, for tax purposes the big day is Dec. 31. If you are legally married on or any time before the last day of the tax year, the IRS considers you married for the full year. That means your tax return for that year must be filed as married filing jointly or married filing separately.

Generally, the joint filing status is more advantageous. Sometimes, though, married spouses fare better (or at least one spouse does) when they opt to file two separate returns. My post on 6 signs married couples should consider separate tax returns has more on these considerations. Also check out the IRS' interactive tax assistant to help you determine which status is best for you and your new spouse.

8. Determine whether you'll face a marriage penalty or bonus. For many couples, getting married results in a lower tax bill compared to the single filing status. This tends to happen when one spouse earns significantly more than the other. Couples that earn similar amounts, however, may wind up paying more combined federal and state tax. This is especially true for higher income earners.

The Tax Cuts and Jobs Act (TCJA) of 2017 made many changes, but these so-called marriage tax penalty or bonus situations remain to some degree. As with all things tax, marriage penalties and bonuses depend on your personal circumstances. But it's good to know how your vows affect your tax situation and explore possible options, such as one spouse deciding to give up or reduce hours at his or her job, to ease any added tax costs.

9. Talk taxes before the vows. You've had the discussion about your tax-favored job benefits. You also discussed how your joint earnings will affect not only your new lifestyle, but also your taxes. Still, you might need to have an additional tax talk. Or two. This is especially true if you have some questions about how your spouse handles some income and subsequent tax matters.

The reason for these added tax talks comes into play if you do decide to file a joint tax return. Both spouses are equally responsible for what's on that lone Form 1040. This is known as joint and several liability and is found in §6013(d)(3) of the Internal Revenue Code. This statute gives the IRS the ability to come after either spouse for payment of a tax bill, even the spouse who is in more dire financial circumstances. You might be able to avoid or lessen the adverse tax implications if you qualify as an innocent or injured tax spouse.

But it's better to be preemptive. So take a good look at your new married financial and tax situation in making the decision (among others) to possibly file separately to avoid any ill effects of this shared tax liability law.

10. Don't forget about your state taxes. Most Americans face some sort of state tax in addition to what they annually owe Uncle Sam. Many of the actions you'll take with regard to your federal taxes (name change, residence, etc.) also apply to your state tax situation. Check with your state tax office or even better your tax adviser as to what to expect, at all tax levels, now that you're married.

While taxes could be, like your wedding vows noted, better or worse after you're married, they usually don't play a big role in couples' decisions to marry. That's how it should be. Love definitely takes precedence over taxes. That said, however, don't ignore them either. You don't want one of your fist disagreements after starting off your new married life to be about taxes.

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