“I Do, Taxes Included.”
There’s a new meaning to “for better or for worse.”
Under the new tax reform, the marriage penalty is mostly gone. Several factors go into this, like whether you are married, how much you earn and how you file your taxes. New this year, married couples will receive a higher standard deduction for filing jointly, unless they are among the nation’s top earners.
If you’re unfamiliar, here’s a simplified breakdown of how the marriage penalty works:
- Let’s say that two single individuals each earn a taxable income of $90,000 per year.
- Under the old tax brackets, both of these individuals would fall into the 25% bracket for singles.
- If this couple were to get married, their combined income of $180,000 would have catapulted them into the 28% bracket.
- Under the new brackets, the couple will fall into the 24% marginal bracket…regardless of whether they were married or not.
Believe it or not, that minimal 4% will positively affect this couples’ bank account. The standard deduction for a married couple in the 24% marginal bracket is $24,000. Last year, they would have received a deduction of $12,700.
Before you ask, choosing to file separately would result in a $12,000 deduction. Across the board, the threshold for singles and married couples is exactly double…for most Americans.
This is where you come in, high wage earners. If you have a taxable income over $400,000, your final tax bill will be a little different. For an optimized return, you should contact a CPA for next steps.
So, before saying I do, keep in mind that your taxes will be a little more complex.
There are perks though.
- Company benefits finally benefit you. You can shop around to find the best healthcare and dependent care benefits, which ultimately impact your take home pay.
- Take a look at your W-4. Did you know adding an additional allowance or changing your filing to married on your W-4 could result in less taxes taken out and more money in your pocket each paycheck? Consult a professional for the best advice.
- Itemizing? The new standard deduction for married couples making less than $399,000 is pretty lofty. It may be beneficial to claim the standard deduction rather than itemize. Talk about time saved!
Let’s walk through your finances to ensure you’re set up for success next spring. Reach out today, and we’ll help you hash out the nitty gritty details.