February 27, 2015
It’s the month of February, and hopefully, the flowers are still fresh and the romantic feelings have not waned since Valentine’s Day.
For those of you who got engaged, it is important to plan for the tax implications of marriage, possibly even going so far as to strategize a wedding date depending on your particular situation. Potential newlyweds should be aware that there is a difference between what you would pay in taxes as a married couple and what you would pay as two single persons.
For tax purposes, your marital status is determined as of December 31 of each year which means you may want to either accelerate your wedding into 2015 or postpone the date until after year end.
As for the nuts and bolts, in 2015, two unmarried taxpayers could have taxable income of between $37,451 and $90,750 and each is in the 25% tax bracket. However, a married, filing jointly couple will be in the 28% bracket as soon as they reach taxable income of $151,201.The single couple could have an additional $30,299 of income before moving up to the 28% tax bracket which would save them just over $900 in federal tax simply due to their marital status.
This disparity holds true for all tax brackets and increases for those in higher brackets. For 2015, the highest tax bracket of 39.6% for a single taxpayer starts at $413,201, vs. $464,851 for a couple filing jointly. Two married taxpayers with taxable income of $413,200 each would pay $273,170 in taxes, while the same two individuals if not married would pay $239,992 for a savings of $33,178.
Furthermore, the Medicare and Net Investment Income taxes may pose an additional tax burden on married couples. The .09% additional Medicare tax applies to earned income above $200,000 for a single taxpayer, while married couples filing jointly are subject to the tax at $250,000.
There are still other tax items that might be impacted such as phase outs for itemized deductions and personal exemptions. The phase out of personal exemptions takes away 2 percent of personal exemptions for each $2,500 above $258,250 of adjusted gross income for a single person in 2015 and $309,900 for married couples. Itemized deductions are reduced by 3 percent of adjusted gross income for the same thresholds.
For those with lower income levels, the earned income credit might be lost, along with access to federal benefits once income is combined.
Older couples should be aware that the survivor benefits of social security are lost once a widowed person gets married. Consideration should be given to waiting until after year end to wed.
However, the IRS does have a heart for those couples with a large disparity in earnings, especially when one spouse is working and one stays at home. In this situation, a married, filing jointly couple will pay less taxes than if the working spouse was still single. Also, good news, Illinois will almost always tax a married couple the same as two single individuals.
For those on the road to a divorce, the tax savings of filing as two single taxpayers could provide motivation for speeding up the process.
An excellent tool is available from the tax policy center at http://taxpolicycenter.org/taxfacts/marriagepenaltycalculator.cfm. A quick calculation can be done of the difference between the tax of two single individuals and the tax as a married couple. The tool is not yet available for 2015, but the 2014 calculator can give you a general idea of where you will stand.
Consult a competent tax advisor for advice particular to your tax situation.
Judy Lynn, CPA, MST is with Caufield & Flood in Crystal Lake. She can be reached at 815-455-9538 or via e-mail at JudyL@cfcpas.com or through the website CFCPAS.com.
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