There are few days as memorable as her wedding day or the birth of her first child. These events signal new chapters of life. However, the first thought at these times is rarely about how taxes will be affected. Nevertheless, these events lead to major changes in a person’s tax situation and in their tax return. Fortunately, TaxAct® can help people going through these life changes file their returns and answer questions about tax implications along the way.
Mark Jaeger, vice president, tax operations at TaxAct, says newlyweds must first decide whether they will file jointly or separately. He notes some situations where the latter may be more beneficial than the former, but the former generally requires less paperwork and provides more benefits. When deciding which choice is best, newlyweds should weigh the impact of their finances on their taxes, as there are instances where joint filing puts married couples at a disadvantage.
“From a tax code perspective, there are some disincentives to getting married,” Jaeger says. “For example, let’s look at the additional 0.9% Medicare tax. If you earn more than $200,000 in salary as a single person, you owe this additional Medicare tax. But if you’re married and filing jointly, you owe the additional Medicare tax if your [combined] income is over $250,000. There is only a $50,000 difference in the income threshold for owing this money between single and joint filers rather than the doubled threshold for joint filers to account for what would otherwise be two single filers. »
Jaeger points out that some of the taxable income thresholds imposed on married taxpayers are not double those of singles; married couples therefore generally pay more tax than single people. These circumstances include the “marriage penalty”: the additional tax liabilities that married persons incur and unmarried taxpayers do not. Marriage penalties are instituted on a federal basis as well as in more than a dozen states.
Some marriage-related penalties have, however, been relaxed or removed. The Tax Cuts and Jobs Act (TCJA) equalized tax rates for filing jointly with their single counterparts by doubling the income range of single tax brackets for married couples filing jointly (excluding the bracket highest tax). Jaeger adds that in 2022, the write-off of charitable contributions for married couples doubled that of singles for the first time.
Jaeger suggests married taxpayers stay organized and work together to plan and prepare their taxes. “Anytime you talk about money, it can naturally be a sticking point in any relationship. So the first thing I always recommend is to get organized when it comes to your paperwork, at least for the first year, and then you can start having discussions about tax planning.” Jaeger also encourages married couples to plan together for retirement, health insurance and savings.
“Little things like these will not only impact your day-to-day life, but also your taxes, help you maximize your refund and reduce the amount you pay in taxes,” says Jaeger.
One major life event, however, creates a variety of tax incentives for married couples: the addition of children to the family. Whether born to parents, adopted or fostered, children bring with them various tax credits and deductions.
Says Jaeger: “Generally speaking, there’s so much in the tax code that you can be entitled to by having children. You might think of child care and dependent care expenses, child tax credit, adoption credit, or recovery refund credit you can get this year for having a newborn baby. There’s just a lot in place for having a kid that’s really helpful when it comes to taxes.
Jaeger said these various tax benefits are the government’s effort to provide some financial assistance to those with dependents. The purpose of these credits and deductions is to ease the financial burden of parenthood so that the next generation can thrive.
For his part, Jaeger says TaxAct prides itself on being ideal tax filing software because it’s user-friendly and offers support throughout the filing process to help new filers complete their returns with confidence. Newlyweds and new parents can work with tax experts for free using TaxAct Xpert Assist*, allowing them to quickly connect filers with CPAs and other tax professionals to get their questions answered. They can also take advantage of Full TaxAct Xpert service**, a new service where users can submit their tax documents to a tax professional for expert hands-on preparation from start to finish. The site also allows users to complete and file their own returns, aided by various easy import features that make the experience easy and thorough year after year.
“We can help you through these changing life events…You go through it a year, you get organized…and then year after year, it’s pretty simple to carry over your information [from last year’s tax return] and fulfill your obligations with the federal government and your state government to file your taxes each year.”
With many tax tools and resources available from one of the most cost-effective options available, new family members can file their taxes with confidence. To find out more, visit www.TaxAct.com.
- * TaxAct Xpert Assist: Available to certain users of TaxAct’s online 1040 product for consumers for an additional fee. Hours of service limited to designated scheduling times and expert availability. Certain tax topics or situations may not be included as part of this service. See in full TaxAct Xpert Assist Terms and Conditions.
- ** Complete TaxAct® Xpert service: Xpert Subject to availability restrictions at TaxAct’s sole discretion. The service provided is complete with the filing of the prepared Federal 1040 return and any necessary modifications or extensions and does not include access to other TaxAct products or features or returns with local or foreign returns or certain tax situations. complex. See in full TaxAct Xpert Full Service Terms and Conditions for more details.