Tuesday, October 4, 2022

How Does Getting Married Affect Taxes

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Do You Need To Include Your Spouses Name On Your Tax Return

How Getting Married Affects Your Taxes

Although your spouse will need to lodge their own tax return, the ATO requires your spouses taxable income information when it comes time to lodge your own.

The information is required:

  • To calculate if you need to pay the full Medicare levy or the Medicare Levy Surcharge
  • To calculate your entitled tax offsets such as the seniors and pensioners tax offset, super contributions on behalf of your spouse tax offset, zone or overseas forces offset, invalid and invalid carer offsets
  • To calculate if youre entitled to a private health insurance rebate

What Is Relief For Maintenance Payments

Maintenance payments relief does not reduce the amount of taxable income on which you pay tax. It is used to calculate an amount to reduce your tax bill instead.

Maintenance payments relief is being phased out. You are only entitled to the relief if you meet all of the following conditions:

  • You are separated or divorced or your civil partnership has been dissolved.
  • You, or your ex-spouse or former civil partner, were born before 6 April 1935.
  • You are making maintenance payments by Court Order.
  • The maintenance payments are for the benefit of your ex-spouse or former civil partner or for your children under the age of 21.
  • Your ex-spouse or former civil partner is not remarried or in a new civil partnership.

Maintenance payments relief works by deducting 10% of the relief from the tax due on your taxable income.

For 2021/22 the maximum relief is £3,530 . This means you get a deduction of £353 from your tax liability.

If your maintenance payments are lower than £3,530, your deduction is 10% of the amount of maintenance you pay.

Enjoy Increased Borrowing Power

Getting married and combining your bank accounts won’t wed individual debts you brought into the marriagethose stay separate in your own names . But when it comes to new debt you might want to take on as a couple, lenders consider both married partners’ credit in their loan applications. If one spouse has excellent credit, it can improve borrowing opportunities for the couple, even if the other has a less-than-perfect history. The legal ties of marriage don’t directly affect your individual credit scores or reports, however, no matter how much debt either partner has or doesn’t have.

Debts you acquire together after marryingwhether by cosigning for each other or opening a new account togetherwill belong to both of you. If you live in a community property state, both spouses are responsible for debt taken on while married, no matter which partner borrowed it. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin Alaska gives the option of community property.

While any debt either partner enters the marriage with remains the responsibility of the borrower, your financial history can affect your financial future as a couple. Be sure to check in regularly to avoid any financial surprises down the road.

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But What If One Partner Earns Significantly More Than The Other

Heres where it gets interesting. In some relationships where one partner earns more than the other, it makes sense to purchase the property in only the lower earning spouses name.

Thats because the total tax you have to pay on the rental income is calculated against your taxable income. The higher the taxable income, the higher the tax payable. So, by investing in the name of the lower-earning spouse, the taxable income and tax payable on any rental income earned is lower than if you split it 50/50.

However, when investing there are more factors to consider than just the taxable income of you and your spouse. We recommend your tax agent gives you detailed tax advice before you decide to ensure you make the right financial choice for your circumstances.

Getting Married Ushers In A Host Of Significant Life Changes Including Among Other Things The Way You File Taxes

Does Getting Married Affect Your Income Tax Return ...

Getting married can mean big changes to your tax returns and tax filing. We asked three of our Motley Fool contributors to weigh in on the biggest ways your taxes can be affected.

Selena Maranjian: One way that getting married can affect your taxes is via the “marriage penalty” — or, sometimes, the marriage bonus. As you know from your life as a single taxpayer, when it comes to deductions, you can itemize your deductions or you can take a standard deduction. You might think that whatever the standard deduction is for single folks, it would be twice that for married people. Not so — at least not for the tax brackets above the 10% and 15% ones. Check out the table below, featuring the tax brackets for 2014:

Now imagine a couple where both partners collect equal incomes of $85,000, for a total household income of $170,000. Note that when each partner was single, each would remain well within the 25% tax bracket. But once they have a joint income, more than $20,000 of it ends up in the 28% bracket, costing them more money. That’s the marriage penalty. It affects many couples, since so many households are two-earner ones these days.

A marriage “bonus” also exists. For an example of it, imagine a couple where one spouse doesn’t earn an income and the other earns $100,000. Before marrying, the earner would have been well into the 28% tax bracket. But once they file jointly, they can have a household income of almost $150,000 while remaining in the 25% bracket.

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How Do Student Loans Impact Marriage

According to Forbes, student loan debt is the second-highest consumer debt category in the United States. More than 44 million Americans have student loan debt. Its possible that youll be marrying someone with student loan debt, or you may have student loan debt yourself.

Even if the debt is only in one persons name, it can still affect both partners. Thats because money needs to be allocated each month to paying off that debt, and the process can take time, depending on how much you owe and the length of the loan term. Paying that money back affects your cash flow and savings.

If you accumulate student loan debt during marriage, that can also affect both partners, especially in a community property state. Thats true even if the loan is only in one persons name.

What Is The Blind Person’s Allowance

Blind person’s allowance reduces the amount of taxable income that you have to pay tax on. If you are eligible for BPA, you are entitled to it in addition to the personal allowance.

The BPA for 2021/22 is £2,520. If you do not have enough income to use any or all of the BPA yourself, you can claim to transfer it in full to your spouse or civil partner.

If you are entitled to BPA, you must tell HM Revenue & Customs about it. You can find out how to contact them about BPA on GOV.UK.

You do not have to be entirely without sight to claim the BPA, but you do have to meet one of the following criteria:

  • You can claim if you are registered as severely sight impaired with a local authority in England and Wales or
  • If you live in Scotland or Northern Ireland, your sight must be so bad as to stop you performing any work for which eyesight is essential.

Entitlement to BPA does not depend on your age.

The amount of BPA to which you are entitled does not depend on your level of income. The BPA is not reduced where your income is more than a certain amount.

If both you and your spouse or civil partner are entitled to claim BPA, you can each claim it independently.

You can find contact details for HMRC and form 575 for transferring surplus BPA to your spouse or civil partner on GOV.UK.

The English and Welsh system in more detail

An eye specialist can check your sight and, if appropriate, certify that you are severely sight impaired. You can ask your GP to refer you to an eye specialist.

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How Marriage Impacts Debt And Liability

One more important financial thing that comes along when you tie the knot: liability. If your spouse declares bankruptcy, cheats on your joint tax return, hurts someone in a car accident or a bar fight, or loses a lawsuit, your joint assets could be at risk. And if he or she racks up certain kinds of debt, creditors might be able to come after you to pay it off.

But before you file for divorce or annulment based on the complicated information above, keep in mind that besides its personal and social benefits, marriage can offer other significant financial protections in the future, such as no federal tax obligations in the event of your spouse’s death. And if you’re married, you’ll automatically inherit your spouse’s assets, even if there’s no legal will. You can count on your spouse’s assets till death do you part.

Do We Need To Submit A Joint Return

Marriage & Divorce | Taxes for Families | 1040.com Tax Guide

In short, no.

The idea of a joint tax return for a married couple or for a household is common in some countries. However, it has never been a feature of Australias taxation system. Our tax system is based on the taxable income of the individual, after factoring in all income, deductions and offsets. That means that in Australia, there is no need for a joint tax return.

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The Tax Cuts And Jobs Act

The advent of the Tax Cuts and Jobs Act , which was signed by President Donald Trump on Dec. 22, 2017, led to several changes to the tax code that were intended to lower corporate, individual, and estate taxes.

There has already been much discussion about how the tax code change makes only small reductions to income tax rates for most individual tax brackets while awarding significant tax reductions to corporations. Also, the cuts that benefit individuals will phase out in 2025 but will remain for corporations and other entities. That debate aside, there is much new information for married couples to consider.

Auto And Home Insurance Benefits

By pooling insurance needs, insurance costs go down. Also, married couples are likely to get into fewer car accidents than single people. Multi-policy discounts and the lower price that comes with being married are just a few of the insurance benefits. Married couples pay approximately 4% to 10% less on premiums for car insurance. Other discounts include multi-car policies and bundling homeowners insurance with auto insurance. Some home insurers offer discounts just for being married be sure to ask once you’re hitched.

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Getting Married And Taxes: What You Need To Know For Your Next Tax Return

Marriage is an exciting and joyful time, but when it comes tax and marriage, its also a source of confusion amongst taxpayers in Australia. At Etax, prospective newlyweds often ask us about the tax implications of getting married. Often, they want to know whether a joint tax return is needed when their relationship status changes from single or de facto to married.

Below, we cover joint tax returns as well as other common marriage and tax related questions.

Can I Transfer My Allowances To My Spouse Or Civil Partner

Getting Married: How Does It Affect Your Finances?

We are often asked if married couples or civil partners can transfer their tax allowances to their spouse or partner if they do not use them. Some allowances are transferable, but others are not.

You can read about this in the section above.

Blind person’s allowance

You can transfer the BPA to your spouse or civil partner, if your income is too low to make use of it. Your surplus BPA can then reduce the amount of taxable income on which your partner pays tax. If you are a non-taxpayer and your spouse or civil partner pays tax you can still transfer your BPA to them.

You can transfer the BPA by contacting HMRC.

You can see how transferring surplus BPA works in the example Paul.

You can transfer the MCA to your spouse or civil partner, if your income is too low to make use of it. We give the full rules in our pensioners section.

If you are claiming both BPA and MCA you cannot transfer one allowance and not the other. You must transfer both allowances together. There is more information including an example in the pensioners section.

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Case Study Three: One Spouse Is Employed

Savings can potentially also be made if only one of you works.

For instance Mary earns 50,000 in 2020 and pays 9,640 in tax. Her partner Martin does not have an income. When they get married their tax liability would be reduced to 6,190. In other words, they can make a saving of 3,450 in tax each year.

H& r Block Makes Tax Filing Easy

If you were recently married, you already have enough on your plate. Dont stress out about taxes. Turn to a trusted source, like H& R Block. They offer a wide range of Tax Preparation Software programs to meet your specific needs. And depending on your tax situation, you may qualify to file your taxes free with H& R Blocks new online product, More Zero.

H& R Block More Zero: More Zero allows clients to prepare federal and state 1040EZ, 1040A, and 1040 with Schedule A completely free. You may be eligible to file your tax return for free, even if you own a home, itemize deductions, have charitable contributions, and have medical or childcare expenses. Learn more at the H& R Block website.

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The New Tax Break For Some Married Couples

Note: The fourth paragraph of this observation was revised on 1st October 2013 to correct errors in the estimates of the numbers of families eligible for this tax cut. These corrections are indicated in the text.

The Prime Minister David Cameron has announced how the Government proposes to recognise some marriages and civil partnerships in the income tax system. From April 2015 it plans to make up to £1,000 of the income tax personal allowance transferable between adults who are married or in a civil partnership, so long as the higher-income adult is a basic-rate taxpayer. We estimate that this would cost the exchequer around £700 million per year. The precise cost will depend on the rate of take-up, as people will presumably have to make an active claim to HMRC to benefit, and the extent to which individuals change their behaviour in order to qualify.

The proposal would work as follows. If an individual were not using all of their income tax personal allowance because their income was less than the allowance, which is set to be £10,230 per year when the policy is introduced then they would be able to transfer up to £1,000 of any unused allowance to their spouse. This transferred allowance would lower the spouses tax bill by up to £200 a year: the amount of basic rate income tax that would be paid on £1,000. However, the transferred allowance will not be available to higher rate or additional rate taxpayers those with taxable incomes exceeding £42,285 in 201516.

Earned Income Tax Credit Penalties And Bonuses

Tax and marriage: How marrying in community of property influences how you are taxed.

The marriage penalty can be especially large for taxpayers who qualify for the earned-income tax credit when one spouses income disqualifies the couple. That said, marriage can boost the EIC if a non-working parent files jointly with a worker with relatively low earnings.

A couple with $40,000 in combined income , for example, had a tax penalty of more than $2,439 in 2018, according to the Tax Policy Center. If this couple were not married, one parent could file as head of household with two children and the other parent would file as single. Under that structure, they would have combined standard deductions of $30,000, which is $6,000 more than the new, aligned $24,000 standard deduction for that income level when filing jointly as a married couple.

When filing separate returns, the head of the household could claim an EITC of $5,434 and a child tax credit of $2,825 . This means that the head of the household is due a refund of $8,059, while the other parent owes $800 for a total refund of $7,259. Had this couple filed jointly, they would have seen a far smaller EITC of $2,420 but a larger child tax credit of $4,000. In all, their refund would be $4,820, which is $2,439 less than if they had been unmarried and had filed separately.

Want to see for yourself? Get your financial documents out and use this tool to calculate whether a marriage would bring a penalty or bonus for you and your significant other.

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Assessment As A Singleperson

Under assessment as a single person, each spouse/civil partner is treated asa single person for tax reasons. With this option:

  • Both spouses or civil partners are taxed on their own income
  • Both spouses or civil partners get tax credits and the same standard rate cut-off point due to a single person
  • Both spouses or civil partners pay their own tax
  • Both spouses or civil partners complete their own return of income form and claim their own tax credits. One spouse or civil partner cannot claim relief for payments made by the other. There is no right to transfer tax credits or standard rate cut-off point to each other.

To claim assessment as a single person, you will have to contact your taxoffice. Either spouse or civil partner can make the claim and the optionremains until the person who claims it changes their mind. If you want to claimassessment as a single person, you must apply within the tax year .

Choosing to be assessed as a single person when you are married or in acivil partnership is unfavourable in some circumstances. This is mainly becauseyou cannot transfer any unused tax credits or standard rate cut-off point. Youcannot claim HomeCarer’s Tax Credit if your spouse or civil partner is caring for adependent person and would otherwise qualify for the relief.

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