It may not be as fun to plan as the wedding venue, invitations and attire, but marriage can result in changes affecting essential tax issues that need prompt attention following the wedding.
Name
If your name has changed, report it to the Social Security Administration (SSA) so that the name on your Social Security card matches the name on your tax return. To make this change, file Form SS-5, “Application for a Social Security Card,” available from www.ssa.gov.
Tax Withholding
Both spouses must furnish their employer(s) with new Forms W-4, “Employee’s Withholding Allowance Certificate.” This is because combined incomes may move taxpayers into a different bracket. Search www.irs.gov for the IRS Withholding Calculator tool to help you complete the new Form W-4.
Filing Status
Marital status is determined as of December 31 each year. Spouses can choose to file jointly or separately each year. Contact the office and ask to have your tax liability calculated both ways.
When a married couple files a joint tax return, each spouse is “jointly and severally” liable for the full amount of tax on the couple’s combined income. That means the IRS can pursue either spouse to collect the entire tax, not just the part that’s attributed to one spouse or the other. This includes any tax deficiency that the IRS assesses after an audit, as well as any penalties and interest. In some cases, however, one spouse may be eligible for “innocent spouse relief.” This generally occurs when one spouse was unaware of a tax understatement that was attributable to the other spouse.
Qualifying for Relief
To qualify for innocent spouse relief, you must show not only that you didn’t know about the understatement, but also that there was nothing that should have made you suspicious. In addition, the circumstances must make it inequitable to hold you liable for the tax. Innocent spouse relief is available even if you’re still married and living with your spouse. In addition, if you’re widowed, divorced, legally separated or have lived apart for at least one year, you may be able to limit liability for any tax deficiency on a joint return.
Election to Limit Liability
If you make the innocent spouse relief election, the tax items that gave rise to the deficiency will be allocated between you and your spouse as if you’d filed separate returns. For example, you’d generally be liable for the tax on any unreported wage income only to the extent that you earned the wages.
The election won’t provide relief from your spouse’s tax items if the IRS proves that you knew about the items or had reason to know when you signed the return, unless you can show that you signed the return under duress. Also, the limitation on your liability is increased by the value of any assets that your spouse transferred to you in order to avoid the tax.
An “Injured” Spouse
In addition to innocent spouse relief, there’s also relief for “injured” spouses. What’s the difference? An injured spouse claim asks the IRS to allocate part of a joint refund to one spouse.
In these cases, an injured spouse has had all or part of a refund from a joint return applied against past-due federal tax, state tax, child or spousal support, or a federal nontax debt (such as a student loan) owed by the other spouse. If you’re an injured spouse, you may be entitled to recoup your share of the refund.
Moving On
Whether, and to what extent, you can take advantage of the above relief depends on the facts of your situation. If you’re interested in trying to obtain relief, there’s paperwork that must be filed and deadlines that must be met. Even if you’re not in need of any such relief now, as you file tax returns in the future, be mindful of “joint and several liability.” Generally filing a joint tax return results in lower taxes for a married couple. But if you want to ensure that you’re responsible only for your own tax, filing separate returns might be a better choice for you, even if your marriage is intact.
Summer is wedding season and newlyweds should understand how tying the knot can affect their tax situation.
Here’s are three things newly married couples should know:
1. Name and address changes
Name. When a name changes through marriage, it is important to report that change to the Social Security Administration. The name on a person’s tax return must match what is on file at the SSA. If it doesn’t, it could delay any tax refund. To update information, file Form SS-5, Application for a Social Security Card. It is available on SSA.gov, by calling 800-772-1213 or at a local SSA office.
Address. If marriage means a change of address, the IRS needs to know. To do that, send the IRS Form 8822, Change of Address.
2. Withholding
After getting married, couples should consider changing their withholding. Newly married couples must give their employers a new Form W-4, Employee’s Withholding Certificate, within 10 days. If both spouses work, they may move into a higher tax bracket or be affected by the 0.9% additional Medicare tax. They can use the Tax Withholding Estimator on IRS.gov to help complete a new Form W-4.
3. Filing status
After you say, “I do,” you’ll have two filing status options to choose from: married filing jointly or married filing separately. While married filing jointly is usually more beneficial, it’s beneficial to figure the tax both ways to find out which works best. Remember, if a couple is married as of December 31, the law says they’re married for the whole year for tax purposes.
For more information about how life changes, such as marriage, the birth of a child, or the death of a loved one, affect your tax situation, don’t hesitate to call.
San Jose: (408) 252-1800 Watsonville: (831) 726-8500
A taxpayer’s filing status defines the type of tax return form they should use when filing their taxes. Filing status can affect the amount of tax they owe, and it may even determine whether they need to file a tax return at all. As taxpayers get ready for the upcoming filing season, let’s take a closer look at how filing status affects a tax return.
Taxpayers can choose from five different filing statuses when filing their returns:
Single. Normally, this status is for taxpayers who are unmarried, divorced, or legally separated under a divorce or separate maintenance decree governed by state law.
Married filing jointly. A taxpayer can file a joint tax return with their spouse if a taxpayer is married. When a spouse passes away, the widowed spouse can usually file a joint return for that year.
Married filing separately. Married couples can choose to file separate tax returns. Doing so may result in less tax owed than filing a joint tax return.
Head of household. Unmarried taxpayers may be able to file using this status, but special rules apply. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person living in the home for half the year.
Qualifying widow(er) with dependent child. This status may apply to a taxpayer if their spouse died during one of the previous two years and they have a dependent child. Other conditions also apply.
When preparing and filing a tax return, filing status affects:
If the taxpayer is required to file a federal tax return
If they should file a return to receive a refund
Their standard deduction amount
If they can claim certain credits
The amount of tax they should pay
Filing status generally depends on the taxpayer’s marital status as of December 31 of the filing tax year (e.g., 2022). More than one filing status may apply in certain situations. If this is the case, taxpayers can usually choose the filing status that allows them to pay the least amount of tax.
Not sure which filing status you should use this year? Help is just a phone call away.
