Getting married is a major milestone, and your nuptials could alter your tax situation for better or for worse. If you're newly married, here are four tax moves you don't want to miss.
1. Review your new (but not necessarily improved) tax bracket
Once you get married and your tax filing status changes, you're likely to see your tax bracket change as well. And that can be a good thing or a bad thing depending on how much money you and your spouse earn. Many couples get to take advantage of what's known as the marriage bonus, which comes into play when one spouse earns considerably more than the other. What typically happens is that both spouses' combined earnings will push them into a lower tax bracket so that less income is taxed at the higher earner's previous top rate.
On the other hand, many couples get hit with what's known as the marriage penalty. This typically happens when both spouses work and earn similar salaries, and its effect can be especially brutal when you're dealing with a pair of high earners to begin with. The marriage penalty generally has the opposite effect of the marriage bonus -- more income gets taxed at a higher rate.
If you've recently gotten married, take a look at your new tax bracket and use it as a starting point for employing smart tax strategies throughout the year. This is an especially wise move if you expect your taxes to go up as a result of your new filing status.
2. Review -- and adjust -- your withholdings
Your employer is required to withhold taxes from your paychecks based on the number of allowances you claim on your W-4. The more allowances you claim, the less money you'll have withheld, but if you get too overzealous with your withholdings, you risk owing the IRS big time come tax season. Getting married can make your withholding situation even more complicated, so it's important to sit down with your spouse, take a look at your deductions, and figure out what makes sense from a withholdings perspective. Specifically, you'll want to make sure you're not doubling up on the same allowances, which could get you into trouble tax-wise.
3. Update your FSA
Typically, you're required to commit to a contribution level for a flexible spending account during your company's open enrollment period, and that amount is what you'll be locked into for the upcoming plan year. For example, if you elect in December to put $1,000 into an FSA for the 2017 plan year and you encounter $2,000 in medical bills by June 2017, you can't go back and put more money in. There's generally an exception to this rule, however, and it's when a qualifying life event like getting married occurs during your plan year. When this happens, you're typically allowed to make changes to your FSA midyear. So if you have a reason to adjust your FSA contribution, the fact that you got married could give you the flexibility to add more money to your account and increase your tax savings. Putting an extra $1,000 into an FSA, for example, will save you $250 if your effective tax rate is 25%.
4. Max out your retirement plan contributions
If getting married does indeed push you and your spouse into a higher overall tax bracket, you may want to take steps to lower your taxable income. One good way to do this is to max out your retirement contributions, which, for those under 50, are $18,000 a year for a 401(k) and $5,500 for an IRA. If you're over 50, you can put up to $24,000 into a 401(k) and $6,500 into an IRA. Any amount you contribute to either type of plan is money that won't be taxed at present. Plus, you'll be doing your part to save for the future.
If you're looking to start off your marriage on a financially secure foot, take the time to review your tax situation and strategize accordingly. A few key tax moves could help you save a bundle and reduce your financial stress -- and that's something every marriage could use.