Sure, Grey Divorce gets a ton of headlines, but what about Grey Marriage?
It’s not unusual for people who are in a later-in-life serious relationship to ask me if they should get married for tax reasons. Not the most romantic of proposal set-ups (Sandra Bullock and Bill Pullman star in While You Were Filing Your Taxes), but a valid question.
Here are some tax advantages to putting a ring on it:
- Wider joint tax brackets. Married Filing Jointly brackets are generally wider than single brackets, which can create significant tax savings when one spouse earns substantially more than the other.
- Larger standard deduction. Married couples filing jointly receive roughly twice the standard deduction available to single filers.
- More favorable capital-gains brackets. Joint filers have wider 0% and 15% long-term capital-gains brackets, potentially reducing taxes on investment gains.
- Higher primary-residence capital-gains exclusion. A qualifying single homeowner can exclude up to $250,000 of gain on the sale of a primary residence, while a qualifying married couple filing jointly can exclude up to $500,000.
- More room for RMDs before reaching higher brackets. Wider joint brackets can help absorb taxable retirement distributions. This can be especially important for someone who would otherwise file single while also receiving RMDs from retirement assets accumulated or inherited from a prior spouse.
- Estate-tax advantages. Assets can generally pass between U.S.-citizen spouses without federal estate tax, and portability can allow a surviving spouse to preserve a deceased spouse’s unused federal estate-tax exemption.
Now, just like actual marriage, tax-driven marriage isn’t all wine and roses:
- Two high earners may pay more. When both spouses have similar high incomes, combining their income can result in a higher overall tax bill than filing as two single taxpayers.
- Net Investment Income Tax (NIIT). The 3.8% NIIT begins at $200,000 of modified AGI for single filers but only $250,000 for married couples filing jointly—not double the single threshold.
- Additional Medicare Tax. The additional 0.9% Medicare tax applies above $200,000 of wages/self-employment income for single filers versus $250,000 for married couples filing jointly.
- SALT deduction limits. The deduction for state and local taxes does not always provide married couples with twice the benefit available to two single taxpayers, which can create a marriage penalty for higher-income homeowners.
- Tax credits and deductions can phase out sooner. Some credits, deductions, and other tax benefits have joint income limits that are less than twice the limits for single taxpayers.
- Student loan payments may increase. For borrowers using certain income-driven repayment plans, filing jointly can cause a spouse’s income to be included when determining payments, potentially increasing the required payment.
So, what lessons can be learned from this post? I guess it’s that marriage, taxes, and financial planning decisions are never clear. There are pros and cons to each choice.
I fall back on my usual position about taxes: Don’t let the tax tail wag the decision dog. If you can’t find a better reason than taxes to get married to your sweetie, it might be time to get back on Tinder.
