Marriage, like every major milestone, brings a multitude of changes. If you’re recently married or engaged, you may not be thinking too much about your taxes yet. But many newly married couples are surprised to discover how marriage impacts their tax situation. After marriage, a couple’s tax liability can go up or down compared to when they were single.

The so-called “marriage penalty” typically occurs when two people with similar incomes marry, which raises their tax liability. To further complicate matters, the Tax Cuts and Jobs Act has brought additional changes to the tax implications of marriage. Whether you’re soon to be married, newly married, or have been married for a long time, we recommend reviewing the new changes to the tax code that may affect how marriage impacts your tax returns.

The Good News and the Tradeoff

Prior to the tax reform, couples in the middle to high income tax brackets faced a tax penalty. Now, that penalty only applies to very high-income earners because the income tax brackets are exactly double those for individual filers.

Unfortunately, that doesn’t mean that the marriage penalty has completely disappeared. Rather, the penalty has been shifted to itemized deductions. If you take the standard deduction you won’t see an impact. But starting this year, taxpayers who itemize their deductions can deduct up to $10,000 in state and local taxes. However, that limit is the same whether you file as an individual or as a married couple, so married couples effectively have that deduction cut in half.

What This Means for You

Each individual’s situation is different, but here are the general implications under the new guidelines:

• Single taxpayers may still want to itemize deductions since the $10,000 state and local tax deduction, in addition to their other tax breaks, may well surpass the value of the standard deduction.
• Married filers will have a harder time finding enough tax breaks to surpass their combined standard deduction, so they may want to take the standard deduction.

Even though the Tax Cuts and Jobs Act has created new tax liability challenges for married couples, there are also new opportunities. You can read our overview of the impact of tax reform here. Please call Cray Kaiser today at 630-953-4900 if you have any questions.