Taxes for married couples

[MrScott81]

So I was wondering.....

Currently (single), my federal and state withholdings are 2.

I found this website that calculates your taxes for you. It was spot on for my paycheck. Since I am getting married soon, I changed the filing status to married, and my paycheck (get paid bi-weekly) went up by $190.

My question is, is this going to bite me at the end of the year (have to pay a lot of taxes), or is it just a tax break for married people?

Website: http://www.paycheckcity.com/copaycycle/netpaycalculator.asp

 

[MagnusTheBrewer]

If claiming 2 when you are single is not already biting you in the ass at tax time then, being married will only help.

 

[DCFife]

Use that site in conjunction with the IRS Withholding Calculator and you can figure out exactly what you have to do. The withholding caculator will tell you if you come up short and should have a little extra $$$ withheld every pay period.

 

[bleuless]

i think there is tax break for married people, can someone confirm?

 

[dartworth]

this late in the year...go for it

 

[mugs]

Originally posted by: bleuless
i think there is tax break for married people, can someone confirm?

There can be if only one of the spouses work or one makes very little money... but I don't think there is one in general.

Edit: That is to say, if only one person works then that person would pay less taxes than if they were single.

 

[PhoenixOrion]

i thought its a tax penalty instead of a tax break for being married, without children.

 

[DCFife]

I can give you a good example of a "marriage penalty". If I was single I could invest in a Roth IRA. If my wife was single she could invest in a Roth IRA. However, because we're married we are over the limit for a married couple to invest in Roth IRA's. That is $8000/yr NOT going to our retirement, just because we're married. At 8% return for the next 30 years (we're both 35) we will miss out on $154,176 EACH on tax breaks because we need to invest in regular taxable accounts instead.

Sometimes we joke that we should get divorced for retirement purposes.

 

[mugs]

Originally posted by: DCFife
I can give you a good example of a "marriage penalty". If I was single I could invest in a Roth IRA. If my wife was single she could invest in a Roth IRA. However, because we're married we are over the limit for a married couple to invest in Roth IRA's. That is $8000/yr NOT going to our retirement, just because we're married. At 8% return for the next 30 years (we're both 35) we will miss out on $154,176 EACH on tax breaks because we need to invest in regular taxable accounts instead.

Sometimes we joke that we should get divorced for retirement purposes.

Oh crap? What's the income limit for a married couple to invest in Roth IRAs? Does that apply to traditional IRAs too?

 

[DCFife]

The "phase out" for married couples is $150,000-$160,000. We make just over the upper right now and my wife is getting ready to start a new job making 35% more (bye bye for good Roth), but it's a tiny company that doesn't have a 401(k). Fortunately we're excellent at paying ourselves first so the investments will still happen, they'll just all be taxable which really sucks for the long-haul.

The traditional IRA limits are the same for us...no deductions over $160k so it would be the same as a normal taxable account.

 

[chambersc]

Originally posted by: DCFife
The "phase out" for married couples is $150,000-$160,000. We make just over the upper right now and my wife is getting ready to start a new job making 35% more (bye bye for good Roth), but it's a tiny company that doesn't have a 401(k). Fortunately we're excellent at paying ourselves first so the investments will still happen, they'll just all be taxable which really sucks for the long-haul.

The traditional IRA limits are the same for us...no deductions over $160k so it would be the same as a normal taxable account.

Congrats on your income.

 

[DCFife]

Originally posted by: chambersc

Originally posted by: DCFife
The "phase out" for married couples is $150,000-$160,000. We make just over the upper right now and my wife is getting ready to start a new job making 35% more (bye bye for good Roth), but it's a tiny company that doesn't have a 401(k). Fortunately we're excellent at paying ourselves first so the investments will still happen, they'll just all be taxable which really sucks for the long-haul.

The traditional IRA limits are the same for us...no deductions over $160k so it would be the same as a normal taxable account.

Congrats on your income.

It's a curse! Don't believe the hype...seriously.

 

[EagleKeeper]

Originally posted by: MrScott81
So I was wondering.....

Currently (single), my federal and state withholdings are 2.

I found this website that calculates your taxes for you. It was spot on for my paycheck. Since I am getting married soon, I changed the filing status to married, and my paycheck (get paid bi-weekly) went up by $190.

My question is, is this going to bite me at the end of the year (have to pay a lot of taxes), or is it just a tax break for married people?

Website: http://www.paycheckcity.com/copaycycle/netpaycalculator.asp

If you are not married by the end of the year; you will at a min need to pay back the extra by 15 April.

Youi also may get hit with a penalty unless you can generated expenses/deducations to change your Adjusted Gross Income to come close the the amount of taxes that should have been paid.

Even if you get married by the end of the year; if your spouse is working; then you may have an underwithholding issue because the combination of income will force higher taxes than either of you paid under normal conditions.

 

[dullard]

Originally posted by: PhoenixOrion
i thought its a tax penalty instead of a tax break for being married, without children.

That is a very common misconception. There are some specific cases where being married has a higher tax rate, but those are very rare. DCFife nailed it. If both spouses work, and if the combined total is in the $150,000-$160,000 range or somewhat close, then there is a penalty. For most couples, that isn't the case.

For most couples, there is a marriage bonus. (1) The standard deduction can be higher for married couples. (2) The income tax brackets are lower for married couples.

Consider for example one person A making $20,000/year and another person B making $50,000/year. When they are single last year they paid this in tax:
[*]Person A: $20,000 - $5000 standard deduction = $15,000 taxible income. 15% tax bracket gives: $730 + 15%*($15,000-$7300) = $1885 in tax.
[*]Person B: $50,000 - $5000 standard deduction = $45,000 taxible income. 25% tax bracket gives: $4090 + 25%*($45,000-$29,700) = $7915 in tax.
[*]Total they paid $1885 + $7915 = $9800 in federal tax as single people.

Now what if those two people with the same incomes were married in 2005?
[*]Net income is $70,000. Standard deduction is $10,000. Taxible income is $60,000.
[*]15% tax bracket gives: $1460 + 15%*($55,000-$14,600) = $8270.

By being married they paid $8270 vs $9800 being single. The marriage bonus is $1530, or $127/month.

My example is a very common example (my total income is reasonable, and it is common that one person earns more than the other). Usually there is a marriage bonus. Yet the marriage penalty is all that is discussed by the liberal media.

I was much worse than this myself. My ex-wife cheated on me and I got divorced. The divorce went through right before the end of 2005. Suddenly I had to pony up several thousand more in taxes in 2005 because I got divorced a bit too soon.

 

[bleuless]

so only the 150,000-160,000 range will be penalty for married couple? if you go over or under that range you are safe? i think that range fits a lot of middle class...

 

[mugs]

Originally posted by: bleuless
so only the 150,000-160,000 range will be penalty for married couple? if you go over or under that range you are safe? i think that range fits a lot of middle class...

Uh... no. Under $150,000 you're safe.