Love and Marriage: Some Tax Benefits of Marriage
Marriage does not only come with a life partner, but also with some tax benefits. A married couple that files a joint tax return will often find that their taxes owed are lower than that of their unmarried colleagues.
There are certainly exceptions to the rule, but most people with average incomes will see some benefits by being married and filing jointly.
These benefits are also extended to retirement plans because they offer various perks or opportunities for married couples to get a jump on retirement savings. Below are some unique tax benefits that married couples can enjoy.
Individual Retirement Accounts, or IRAs, help you to make contributions towards your retirement. One of the eligibility requirements for making a contribution to IRA is that you must have a taxable income. However, there is an exception to this rule for married couples who file joint tax returns with a spouse who has a taxable income.
According to this law, the spouse who has a taxable compensation is permitted to contribute to the IRA account of the spouse without a taxable income. This is referred to as Spousal IRA whereby the nonworking spouse funds their IRA using the income of their partner.
Marriage Tax Rates
If you’ve paid attention to tax rates before, you’ll know that there are clearly different tax rates for individuals and married couples filing jointly. For example, a single person earning $50,000 per year in 2013 tops out at the 25 percent tax rate. However, if this person marries someone earning $20,000 each year, their total income is $70,000, but their joint income will top out in the 15 percent rate as long as they jointly file their tax returns. In effect, you can together earn more money while paying a lower tax rate.
The IRS usually rewards all taxpayers with an automatic deduction on their taxable income. This is known as the standard deduction. When filing 2013 taxes, a single taxpayer will enjoy a standard deduction of $6,100 while a married couple that files their returns jointly would get twice this amount at $12,200.
Other tax savings are made through dependent and personal exemptions which stand at $3,900 each. Before the passing of the Economic Growth and Tax Relief Reconciliation Act of 2001, married couples enjoyed a standard deduction that was less than the amount for a single person multiplied by two. This was referred to as the marriage penalty, which was deemed as unfair to married people.
Thankfully, tax legislation reduced marriage penalties and increased marriage bonuses. Plus there are plenty of opportunities for couples filing jointly to itemize deductions and go above and beyond the standard deduction. This becomes increasingly valuable when a couple buys a home and pays mortgage interest, have children that require day care, or have older children preparing for college.
Many people in marriages are blessed with children. What some people don’t know is that children in a marriage increase your tax exemptions. In 2013, every member of any family gets a personal tax exemption of $3,900, regardless whether it is an infant. There is also the child tax credit whereby $1,000 is deducted for each child under 17 for spouses making less than $110,000 every year.
Sure, having children and getting married costs far more than these tax breaks, but when it comes to paying taxes you still want to get every tax deduction and credit you’re entitled to.