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Tax to-do's after you say 'I Do'

Couple wedding day_pexels-min-an-752831
Photo by Min An from Pexels

Among the many welcome events that are returning as we continue to move beyond complete COVID-19 lockdown are weddings. Congratulations and best wishes to all the brides and grooms out there who finally are enjoying their long-planned celebrations.

My gift to all y'all newlyweds is a few words of marital tax advice. With apologies for the spare gift wrapping, here are some tax tasks you need to take care of now, or at least as soon as you get back from your honeymoon.

1. 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 Internal Revenue Service matches what's on your 1040 with the SSA data every filing season. If your new name on your return doesn't match the official SSA info, it could delay any refund from your first post-wedding tax filing.

2. Update your address. Marriage often means at least one spouse will have a new address. In these situations, the IRS and the U.S. Postal Service both need to know. Newlyweds can file Form 8822, Change of Address, to update the IRS.

The happy and happily relocated couple can let the U.S. Postal Service know where to forward mail by going online or by visiting your local post office.

And even if you didn't invite your boss(es) 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(s) will send you early next year has the correct information.

3. Deal with dual withholding. Sticking with work, 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 IRS 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 tax withholding estimator is a good way for all taxpayers to make sure they get their withholding right.

4. Reassess tax-favored workplace benefits. Also stop by your workplace's benefits office to make any changes necessary now that you're a couple. Marriage is a life change that generally allows you to make these adjustments immediately instead of waiting for the next benefits open enrollment period.

Considerations include coordinating health care coverages and, if available, associated flexible spending account (FSA) contributions. Just like with your now-married withholding, you need to assess how these tax-preferred medical accounts fit into your new lifestyle and where changes need to be made. Such assessments are particularly important if your marriage results in a blended family with dependent children.

Potential health care coverage changes also are important if instead of a workplace provided policy, you get medical insurance through the Affordable Care Act's (aka Obamacare) Health Insurance Marketplace exchange or a state marketplace. You might be eligible for or now make too much combined income to qualify for the premium tax credit (PTC).

5. Evaluate your filing status. Your wedding date obviously is important to you and your spouse. Uncle Sam is interested, too, but not because he's going to send you an anniversary gift. Rather, when you say "I do" determines your tax marital status.

If you are legally married on Dec. 31, the IRS considers you married for the full tax year. And that determines your filing status for tax purposes. As a married couple, you must file your tax return jointly or married filing separately.

Filing jointly generally 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 situations. Also check out the IRS' interactive tax assistant to help you determine which status is best for you and your new spouse.

6. Determine whether you'll face a marriage penalty or bonus. For many couples, getting married and filing jointly 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.

But not always. Couples that earn similar amounts may wind up paying more combined federal and state tax than they did when they each filed a solo tax return as single taxpayers.

These so-called marriage tax penalty or bonus situations depend on your personal circumstances. And much of the time, there's not much you can do about it. But it's good to know how your vows affect your tax situation and explore possible options to ease any added tax costs. Since taxes are so personal, it's a good idea to talk with a tax professional about marriage penalty reduction (and other tax) issues and options.

7. Understand how your taxes are now linked. The tax linkage that comes with your legal coupledom also could pose some problems if you and your spouse have diametrically opposed approaches to taxes. You need to be aware of that before you decide to file jointly, since both spouses are equally responsible for what's on that lone Form 1040.

This is known, per §6013(d)(3) of the Internal Revenue Code, as joint and several liability. That 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.

If you find during your first tax season as a married couple that your spouse likes to play it a bit too fast and loose with the tax code for your liking, you need to discuss that before sending the IRS a joint return. You might decide that filing separately (see wedding tax tip gift #5) is the best way to avoid any questions the IRS might have about your husband's or wife's tax filing tactics.

8. 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, to borrow a phrase from your wedding vows, for 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 your new married tax connection 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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