how does “getting married for tax purposes” work
In: Economics
You get married and files joint taxes. If you planned correctly you will be in a lower tax bracket and pay less in taxes. If it is a marriage only for tax purposes presumably the people either live together as friends or have separate homes.
When you get married you get to combine your deductions.
If one person isn’t working or working very little, all of their deductions go to “waste” because they’re not paying any taxes anyway.
Marrying someone who is paying a lot of taxes will allow them to double the deductions without doubling the household income, and so the tax burden goes down.
When I got married our combined tax burden dropped by about $1500 a year. If my wife was unemployed the drop would have been considerably larger.
A married couple has the option to file their taxes jointly – they basically combine their incomes and fill out one set of tax forms for their household. Depending on how their total incomes match up with the “filing jointly” tax brackets, how their deductions work, etc. it can end up reducing the tax burden. Not every couple benefits from filing jointly, but it often ends up saving some money.
Hell, my parents got married for tax purposes. They were fully committed in a relationship, but marriage wasn’t something that was important to them, and my dad had a rough first marriage. But the tax savings were decent, and it made health insurance for the family easier (since my mom adopted my dad’s kids from the first marriage as well), so they made a Vegas trip and sealed the deal.
|Tax Rate|Single|Married filing jointly|
|:-|:-|:-|
|10%|$11,600 or less|$23,200 or less|
|12%|$11,601 to $47,150|$23,201 to $94,300|
|22%|$47,151 to $100,525|$94,301 to $201,050|
|24%|$100,526 to $191,950|$201,051 to $383,900|
|32%|$191,951 to $243,725|$383,901 to $487,450|
|35%|$243,726 to $609,350|$487,451 to $731,200|
|37%|Over $609,350|Over $731,200|
It generally only works when there’s a significant difference in income levels.
Imagine a person making $300k and another making $50k. The higher earner would be in the 35% bracket while the lower would only be in the 22% bracket. By getting married, the full income never gets above the 24% Bracket. Yes, the $50k person is now in a higher bracket, but as a combined financial entity, their overall tax bill is lower.
It’s important to note that there’s a marriage penalty when both individuals are high income. Two people each making $400k would have been in the 35% bracket, but would go to 37% when combined.
Here is a simple example with made up numbers. Jamie makes $100. Pat makes $10. Government says you don’t pay taxes on your first $25 of income. We will simplify taxes to a 20% tax rate for this example.
If not married, Jamie owes taxes on $75 ($100-$25=$75). Jamie pays $15 in taxes (20% of $75), and ends up with $85 ($100-$15) in the end. Pat pays no taxes on $10 sincr it is less tgan $25 and ends up with $10 in the end. So, between Jamie and Pat, they have $95 total in the end ($85+$10=$95)
Being married, Jamie and Pat add their incomes together and don’t pay taxes on the first $50. They make $110 together and owe taxes on $60 ($110-$50=$60). They pay $12 (20% of $60) in taxes. So they end up with $98 ($110-$12) in the end, which is $3 more than they had not being married.
It’s much less of a thing now with dual income families and couples typically in similar tax brackets (eg a doctor marries a lawyer, not a truck driver). Was much more of a difference in the time of single income families. The single guy making $50k saw his taxes go way down when he was married with a kid a year later. But now, when it’s a single guy making $50k and his new wife is making $45k, their taxes as a married couple earning $95k isn’t that different. Other benefits, like capital gains on sale of a house, as basically granting each individual the same savings as if they were single, eg. $250k in gains tax free for a single person, $500k for a couple.
I was single dad 1 dependent. I’d get about 2k refund yearly. My partner was single, 3 kids, would get 6-8k refund. Living under same roof as many do. We got married, filed jointly following year (nothing else changed), refund was 3k. For some situations it’s a marriage tax.
You can look at marriage two different ways. There’s the spiritual/cultural aspect and then there’s the legal side. The legal side is managed by the government, and they get to say what benefits are available to married people vs people that choose to be in a partnership not otherwise recognized.
If you’re not religious, there’s really not much difference between being a long term partnership vs being married. Except when it comes to those legal benefits, one of which is tax filing. Because the state recognizes you as a unit, your income (or lack there of) is now recognized as one.
So for example if Alex and Jordan are long term partners, they file taxes separately. Alex makes 200k a year and Jordan has recently begun working part time only while taking care of the kids, so takes home $12k…Both of them only get to take the standard deduction of $13850… meaning Alex gets taxed at a higher rate of 32% and Jordan is at 0. They pay 64k in tax.
If they’re married, they file together with their 212k and get taxed at 24%or 51k, saving them 13k , just by being married. And if Jordan were to stop working, they still get to take a standard deduction for both, whereas if they weren’t married, Jordan just wouldn’t file that year. So it’s lost income and lost tax savings.
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