The Best Time for a Wedding, Depending on Your Taxes
Planning a tax-free wedding takes a very practical person, but most people think about the financial benefits of marriage before tying the knot. Timing can affect how much you pay to the IRS, and it’s helpful to understand the impact marriage has on your taxes so that you don’t be surprised by the huge bill (or refund) during tax season.
Here’s what you need to know.
Calculate if you will receive a bonus or a penalty
Depending on how much you earn, you and your spouse will receive either a marriage bonus or a marriage penalty when you tied the knot.
Most couples receive a bonus, which means they pay less taxes by pooling their income. This is more common when partners earn different amounts – a lower-paid spouse pulls a higher-paid spouse into a lower tier – or in cases where only one person earns income.
However, some couples do receive a fine, which means that their combined income is pushing their combined family into a higher tax bracket. This usually happens when both partners are earning the same high or low income. Under the Tax and Employment Cuts Act 2017, the marriage penalty has been made slightly less severe for everyone except those earning income in the top (37%) income tax bracket – $ 622,050 or more for married couples filing a joint registration – but you can still get a fine. if your incomes are similar.
According to tax fund analysis , marriage bonuses can be as high as 21% of your total income, and marriage penalties can be as high as 12%.
We’ve written extensively about taxes and marriage , but when it comes to choosing the best time to get married , you just need to know if you will receive a bonus or penalty when you get married. Tax Policy Center’s handy marriage calculator does everything for you.
The IRS believes that you are married for the entire tax year.
When you pay taxes for the first time as a married person, you may be surprised to learn that even if you got married in December, the IRS believes that you are married all year long. (The same goes for divorce . If you divorce on December 31st, you are divorced for the entire tax year in the eyes of the IRS.)
In other words, your registration status for the entire tax year depends on your marital status as of December 31 of that year. This rule catches many married couples by surprise, which incurs penalties because they end up owing more than they think, especially if they get married at the end of the year.
On the other hand, if you receive a bonus, this rule works in your favor. You receive a bonus for the entire year, whether you got married in January, July or December.
How to choose a date depending on whether you receive a fine or a bonus
If you are eligible for marriage penalties , planning your wedding closer to the start of the year can help you save on taxes. For example, if your wedding is in October 2020 and you are likely to be upgraded, you will pay more starting with 2020 taxes (filed in April 2021).
If you wait a couple of months and get married in January, your new, higher tax category won’t take effect until 2021, saving you a whole year in additional taxes.
Obviously, this decision requires much more, even from a financial point of view: the cost of the venue, the prices of air tickets for guests from other cities. Plus, you get the special tax breaks you get when you get married and file joint registrations, even if you get a fine – for example, a higher exemption amount when you sell your home. Rescheduling your date means you, too, will miss out on those benefits throughout the year.
On the other hand, if you get a bonus, you can get married early to reap the full benefits. For example, you can reschedule a wedding from January 2021 to December 2020 to get an additional year of tax savings and benefits. (Of course, that also means you’ll be on wedding mode during the holidays, which sounds like a nightmare.)
Take a look at your holds until your wedding day
Regardless of when you get married, you should at least understand how changing your status will affect your deductions and your account.
Robert Westley, CPA and a member of the American Institute of Certified Professional Accountants (AICPA) Financial Literacy Commission, recommends not updating your liens until after your wedding. If you change the amount of deduction at the beginning of the year and then decide not to get married until December 31st (say, your wedding is being delayed due to the global pandemic), you may face unexpected interest rates and penalties, he says.
You can of course accommodate this if you like. If you expect to receive a fine within a year, adjusting the withholding early will ensure that you don’t get an unexpected huge tax bill in April. If you are expecting to receive a bonus, the adjustment now ensures that you do not overpay taxes for a year.
To find out if and how to update your tax payments, enter your future filing status in the IRS Tax Withholding Calculator . If you think your tax liability will change dramatically after your wedding, ask your employer if you can update your W-4 to add or remove certain benefits.
The more benefits you ask for, the less taxes you will withhold. If you receive a penalty, you need to remove certain premiums. This means that you will pay more taxes throughout the year, which is ideal if you want to avoid the huge tax bills next April.
Know When to Serve Separately
Westley says that in most cases, married couples benefit from joint filing, since filing separately usually results in much higher tax bills. However, there are a few cases where it might be better to file separately – for example, if one partner has very high unreimbursed medical expenses, or if one or both partners have an income-driven repayment plan for their student loans.
This is why it is important to understand your entire financial picture before making any major changes to your tax plan.
Of course, most of us are not going to plan an important event that seems to happen only once in a lifetime around our taxes. However, it’s good to know how your wedding date will affect your finances beyond the money you spend on the event itself. Especially if you get a fine, it helps to be prepared for all changes.
This article was originally published in April 2016 and was updated by Emily Long in June 2020. Our updates include the following: CPA quotes, updated retention guidelines, an explanation of new tax rules, updated calculator links, and a new lead image.