June is the traditional month to get married, but Uncle Sam bestows wedding gifts equally on all couples that say “I do” from January 1 through December 31. This includes a $24,000 standard deduction, which is $6,000 more than the standard deduction for married couples filing separately.
In most cases, married couples filing joint returns pay less in taxes than unmarried couples filing individual returns. This usually occurs when one spouse earns less money than the other does. When the two incomes are combined, the lower income has the effect of pulling the higher income down, often resulting in less tax. In rare instances, married couples might pay a higher tax rate—the notorious “marriage penalty.” However, even this “penalty” can often be offset with other tax advantages for married couples.
Here are four ways that being married can lower your tax bill:
1. What is bad for one can be good for two
You can act as a tax shelter for your spouse when you experience business losses or high medical expenses. For example, if you and your spouse file separate returns, your business loss will reduce your taxable income, but your spouse can still be taxed at a higher rate. But when you file jointly, your business loss can result in a lower taxable income for the two of you as a couple. The same is true if roles are reversed and your spouse is experiencing the business losses. The negative income can offset the positive income, potentially resulting in lower taxes.
2. Maximize retirement benefits
Being married can boost your retirement savings. This is because the tax deduction for contributing to an individual retirement account (IRA) phases out as your income rises, but those phase-outs begin at a much higher level for married couples than they do for single taxpayers. As a result, you have more opportunities to take advantage of the IRA tax deduction if you are married.
In addition, you and your spouse both can contribute the maximum amounts to an IRA, regardless of your individual incomes. Even if you or your spouse are not working, you can still make the maximum contribution to an IRA. Because of these tax benefits, people who couldn’t afford to fund an IRA when they were single can save thousands of dollars toward retirement using their joint income when they are married—and possibly reduce their taxes at the same time.
3. More choices for benefits
If you and your spouse work for different employers, you probably have different benefit packages. This means you can “benefit shop,” possibly choosing the most valuable benefits from each plan. Having two plans to choose from can also increase your tax savings.
For example, your employer might offer flexible spending accounts, while your spouse’s employer does not. In 2019, flexible spending accounts allow you to shelter up to $2,700 in earnings for medical expenses from income tax and FICA (Social Security and Medicare) withholding, reducing the taxes you pay throughout the year. You can also shelter money for child and dependent care with a flexible spending account. The contribution limit for dependent care cost is $5,000 per couple per year in 2019.
4. Protecting a spouse’s estate
A married person’s estate can be left to his or her spouse without triggering the estate tax, which takes as much as 40% of a deceased person’s assets above $11.4 million (tax year 2019). Thanks to this provision in federal law, the surviving spouse can benefit from the full estate for the rest of his or her life.