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Posted on April 28, 2018

taxes eliminating marriage penalty

For years, marriage has meant the union of two people in all things except their taxes. For some odd reason, combining their incomes results in pushing a couple into a higher tax bracket than if they file separately. This tax anomaly is called the marriage penalty. The 2018 Tax Cuts and Job Act (TCJA) eliminates this discrepancy for couples except those earning more than $400,000. Regardless of filing jointly or separately, spouses remain in the same tax percentage.

This common-sense adjustment saves money if you always file together. Due to other TCJA changes in the tax code, we suggest couples complete their tax returns both jointly and separately and compare them. Seek the assistance of a tax professional, like those at the Dutton Law Group, if you still have questions regarding the 2018 changes.

Is It More Advantageous for Married Couples to File Jointly?

Previously, the tax brackets for spouses filing jointly are only 12.5% more than single filers. It should be twice that of a single person due to combining two incomes. The TCJA corrects these thresholds, doubling the amount. For the 2018 tax year, there is no difference in the rate for married couples filing jointly or separately. 

What Issues Arise from Filing Jointly?

Lower-income couples who file jointly run the risk of moving into a higher percentage, making them ineligible to use the Earned Income Tax Credit. Unfortunately, some of these benefits cannot be applied if you file separately. A tax professional can help determine what deductions you qualify for and if they can benefit your family.

Should We File Separately and Itemize?

The standard deduction for married couples filing jointly is $24,000 (up from $13,000). Itemized deductions must be over this amount. The TCJA has eliminated or revamped many itemized exemptions so check the tax code. You may not have as many deductions as in years past. If you decide to file separately, remember one spouse cannot itemize while the other claims the standard deduction. Both must itemize. Filing separately can also cause you to lose out on using benefits like the Child and Dependent Care Credit.

Why Do Married Couples Need to Adjust Payroll Withholding?

Because married couples can combine incomes to file, it is a good idea to make sure each spouse has enough withheld for taxes. Filing jointly can put you into a higher tax percentage and require you to pay an additional Medicare fee. The goal of withholding is to match the amount of tax you are required to pay for the year. You do not want to receive a significant refund or pay a hefty amount.

Dutton Legal Group – Indiana’s Tax Resolution Law Firm

Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Stop worrying about your taxes and how the TCJA affects them. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.