Don't Mess With Taxes

Photo by Jakob Owens on Unsplash

After two years of decline, thanks in part to the coronavirus pandemic, marriages in the United States have returned to pre-COVID levels, according to the U.S. Census Bureau's recently released 2022 American Community Survey (ACS).

Even better for romantics, a major jewelry company is predicting a spike in engagements as more of us return to pre-pandemic lifestyles, including dating…and more.

If you're planning nuptials, or already have said, "I do," congratulations.

Now here are eight tax tasks you need to take care of, after the honeymoon, of course.

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 needs to be on your address update list. It's easy to let Uncle Sam know where you'll be living, and filing your returns. Just Form 8822, Change of Address.

And even if you didn't invite your bosses to the wedding, they also need to know about your address and/or name changes. That's the only way to ensure the Form W-2, Wage and Tax Statement, they'll will send you has the correct information.

3. Deal with dual withholding. Speaking of work, a key post-vows tax move is adjusting your paycheck 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.

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. Staying on the job, 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.

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. If you're unsure of which status works best, check out the IRS' interactive tax assistant. The online tool can help you find answers to several tax law questions specific to your individual circumstances.

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. Don't forget about your state taxes. Most Americans face some sort of state tax in addition to what they annually owe the U.S. Treasury. 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 your tax adviser as to what to expect, at all tax levels, now that you're married.

8. Talk taxes before the vows. 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.

So it's good to know before your first filing season as a couple whether your new spouse likes to play it a bit too fast and loose with the tax code for your liking. In that case, you might decide that filing separately (see the earlier filing status tip) is the best way to avoid any questions the IRS might have about your husband's or wife's tax filing tactics.

It's also a good idea to discuss other money matters. Finances are one of the major stresses on a marriage. Being upfront about how you deal, or don't, with dollars early in your marriage can help you find ways to work together financially.

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.

You also might find these items of interest:

• After "I do," say "I donate" my wedding dress 
• 4 tax-smart ways to give back on your wedding day 
• 7 tax considerations for divorcing couples

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