Sort of Unexpected Wedding Cost...

kgd7357

I got married and June and have been starting to pull together our tax info for the year. After crunching the numbers I realized we are going to get hit with over 10K in marriage tax penalties. I confirmed with our CPA that this is in fact going to be the case, ugh. We both make pretty decent salaries (mid level government workers), but nothing crazy, and we also live DC, which is crazy expensive, so you need a decent salary to live. 10K is more than 5% of our combined take home income from previous years, so I'm freaking out a little. Has anyone else run into this? Did you rebudget to make it work? I already went into payroll this week to change my deductions so we don't get slammed with a giant tax check in the spring, but it's certainly going to make this fall/winter a tight budget one.

Sorry for the mini rant. Don't worry, this will not throw us into crazy debt, I was just a little shocked at how high the number was.

pinkcow13

Umm what is a marriage tax penalty?? I will be getting married next year, and this is something I do not want to have to deal with.

AprilH81

Can you file separately?

moutonrouge

pinkcow13 said:

Umm what is a marriage tax penalty?? I will be getting married next year, and this is something I do not want to have to deal with.

When you get married, your combined income plus your status as a married household can change your tax rate significantly from before you were married, particularly for women who are usually making less than their spouses. A few friends have even had to pay the estimated tax payments prior to getting married in order to avoid the underpayment fine come the end of the year. It is a good idea to see what your taxes might be once you marry and compare that to how much is being withheld currently. An accountant or even a program like TurboTax can help with that. 

kgd7357

 

AprilH81 said:

Can you file separately?

Did the numbers on that. It's actually worse, since the marginal brackets are shrunk for married filing separately.

Jells2dot0

We got hit with it. We knew going into it that our tax burden would increase, so we both left our withholdings as "married, but withholding as single." DH also lowered his exemptions. Mine were already at zero. We owed money last year, but we were prepared for the worst.

Fwiw- not every couple gets hit with this. If your incomes go beyond a certain point when filing jointly, it kicks in.

msuprincess04

We are also a DC couple (actually MD which is worse), and we looked into it as well, since getting married in May. Ours is something like over $8k too. It's insane. We increased our tax withholdings, put extra away in savings, and we are looking into filing seperately since we have two houses. It's one of the drawbacks of marriage.

theartistformerlyknownas

Ewwwwww. 

ETA: just looked it up. Definitely knocks me into a higher tax bracket whether I file jointly or separately. Gross.

http://money.usnews.com/money/blogs/my-money/2014/03/11/how-much-the-marriage-tax-penalty-will-cost-you

pinkcow13

Jells2dot0 said:

We got hit with it. We knew going into it that our tax burden would increase, so we both left our withholdings as "married, but withholding as single." DH also lowered his exemptions. Mine were already at zero. We owed money last year, but we were prepared for the worst. Fwiw- not every couple gets hit with this. If your incomes go beyond a certain point when filing jointly, it kicks in.

Whoa, I thought that getting married was supposed to help out the whole tax situation? As you can tell, I know very little about taxes. I make less than FI does, but combined we make a very decent amount. So this means this will work against us? 

kgd7357

pinkcow13 said:

Jells2dot0 said:

We got hit with it. We knew going into it that our tax burden would increase, so we both left our withholdings as "married, but withholding as single." DH also lowered his exemptions. Mine were already at zero. We owed money last year, but we were prepared for the worst. Fwiw- not every couple gets hit with this. If your incomes go beyond a certain point when filing jointly, it kicks in.

Whoa, I thought that getting married was supposed to help out the whole tax situation? As you can tell, I know very little about taxes. I make less than FI does, but combined we make a very decent amount. So this means this will work against us? 

I crunched a bunch of senarios. I found it starts kicking in at combined income of between 110K-$170K depending on how the income is split.

theartistformerlyknownas

pinkcow13 said:

Jells2dot0 said:

We got hit with it. We knew going into it that our tax burden would increase, so we both left our withholdings as "married, but withholding as single." DH also lowered his exemptions. Mine were already at zero. We owed money last year, but we were prepared for the worst. Fwiw- not every couple gets hit with this. If your incomes go beyond a certain point when filing jointly, it kicks in.

Whoa, I thought that getting married was supposed to help out the whole tax situation? As you can tell, I know very little about taxes. I make less than FI does, but combined we make a very decent amount. So this means this will work against us? 

It depends how close you are to the next tax bracket by yourself. If you're at the top of one bracket and he's in the next higher one, you'll likely get bumped to that higher one once you combine your incomes.

If, say, someone making $40k (25% bracket) married someone making $100k though (28% bracket), the joint income would still fall within the 25% bracket so the $100k one would essentially get a "bonus."

mschristie123

Ugh DH and I were just talking about this! I was convinced that getting married actually helps you with taxes, but I guess I was wrong. We will definitely be moving into a higher tax bracket whether or not we file jointly or separately.

I am hoping and praying and doing a rain dance and everything else possible to get out of my job by the end of this year and into a higher paying job. So IDK how that will affect things either.

JennyColada

My tax bracket goes up by 10%. His stays the same if we file jointly (goes up if we file separately I think).

DH was kind of pissed about it when he looked it up (when we first got engaged), so I changed my withholdings to 0.

theartistformerlyknownas

JennyColada said:

My tax bracket goes up by 10%. His stays the same if we file jointly (goes up if we file separately I think). DH was kind of pissed about it when he looked it up (when we first got engaged), so I changed my withholdings to 0.

DH stays in the same one too. Only I get hosed.

Between this and all the hassle of changing my damn name, I'm really getting the raw end of this marriage deal. ;-)

Jells2dot0

lolo883 said:

pinkcow13 said:

Jells2dot0 said:

We got hit with it. We knew going into it that our tax burden would increase, so we both left our withholdings as "married, but withholding as single." DH also lowered his exemptions. Mine were already at zero. We owed money last year, but we were prepared for the worst. Fwiw- not every couple gets hit with this. If your incomes go beyond a certain point when filing jointly, it kicks in.

Whoa, I thought that getting married was supposed to help out the whole tax situation? As you can tell, I know very little about taxes. I make less than FI does, but combined we make a very decent amount. So this means this will work against us? 

It depends how close you are to the next tax bracket by yourself. If you're at the top of one bracket and he's in the next higher one, you'll likely get bumped to that higher one once you combine your incomes.

If, say, someone making $40k (25% bracket) married someone making $100k though (28% bracket), the joint income would still fall within the 25% bracket so the $100k one would essentially get a "bonus."

That's what happened with us. We also got hit with the lovely phase out of personal exemptions and itemized deductions. There were a lot of things we could deduct previously that we can no longer claim. 

Bubblegum5586

Wow never thought of this and we have been married over a year! I just did my turbo tax, we got money back and all was good. Thanks to @lolo883 I can now UNDERSTAND why and brace ourselves for next year.

Last year I was in the 25% while H was in the 15% and combined we fell in the 15% so that is why I think I didn't think much of it!

Well H got a new job in March and is making a lot more then he was and it put him at the 25% now, as well as myself and jointly... crap... so we will see a difference this year then? 15% to 25% seems like a HUGE jump!!!

littlemushroom

We make about $300 too much to get a marriage tax bonus for filing jointly. Fortunately, filing separate will keep us both in the same tax bracket we would have been in if we were single. If we filed joint, DH would stay in the same bracket and I would get hosed.

daria24

The first year we were married, my H was unemployed/working PT for nearly the whole year. We got a nice refund. Year two we were both employed and got hit with over $7k. We both contributed the max to our IRAs, which knocked about half off the tax bill. Then I changed my W2 to 0 and married-withhold at a single rate.

If you are close to the lower tax bracket-you can look into a FSA/HSA, transportation accounts, etc to see if you those lower your income enough.

abl13

I'm an accountant - it truly depends on how close your incomes are. Most couples that have very different incomes are more likely to get a bonus where people with similar incomes are more likely to pay more because of the phase out of exemptions and credits. It's good to pay attention to the different tax reform plans because this is one of the issues that always comes up in those discussions. The next presidential election will likely be focused on tax reform.

Cookie Pusher

Yea, DH and I are going to get hit with the penalty. We have the money to cover it in our savings account, so it's not as big of a deal, but it still sucks.

theycallmelinz

I don't even know what all this means. I'll be put into the higher tax bracket whether we file jointly (28%) or separately(25%), but FI will stay the same unless we file jointly (28%). 

Does that mean that you pay that percentage in taxes out of your income? 

Times like this make me really miss being 18 and living at my parents' house so they could handle all this for me.

jenna8984

I do taxes....not professionally but I do have an accounting degree and I do my own as well as some friends'.

You guys can use this calculator to estimate what your tax will be. Remember that your TAXABLE income is not just your straight salary. Take out any 401k and medical pre-tax items. For example my taxable income is about $9,000 less than my annual salary.

I got what our taxes owed will be and then I checked my YTD paystub and DH's YTD paystub and we've already hit the amount that will be due. So any taxes we pay from here to Dec will be our refund. It's quite simple if you always withhold 0 and I even have them withhold an extra $40 a week just to be super sure.

http://www.moneychimp.com/features/tax_brackets.htm

@bubblegum1309 As you can see from the chart I linked, the first 73k of you & DH's income is taxed at 15%. Only above that is taxed at 25%, so your marginal rate when you combine and average is only about 17%.

 

lyndausvi

I use the irs.gov withholding calculator through out the year to make sure we are fairly close to even. (I do not have a set income and work a 2nd job a few months a year).

 Sometimes we owe a grand.  Sometimes we get back a few hundred.  But the amounts are neither hardships if we owe or windfalls if we get a refund.     While we did have to pay more, we were okay because we figured it out early and adjusted our withholding accordingly.

In the islands it would take up to 4 years to get a refund, I would rather owe a few hundred bucks then wait 4 years for a large refund.  So I've been doing this for a long time.

theartistformerlyknownas

lulu411 said:

I don't even know what all this means. I'll be put into the higher tax bracket whether we file jointly (28%) or separately(25%), but FI will stay the same unless we file jointly (28%). 

Does that mean that you pay that percentage in taxes out of your income? 

Times like this make me really miss being 18 and living at my parents' house so they could handle all this for me.

Yep. Essentially the first 3 months of the year you gave all your earnings to the government. 

lyndausvi

lolo883 said:

JennyColada said:

My tax bracket goes up by 10%. His stays the same if we file jointly (goes up if we file separately I think). DH was kind of pissed about it when he looked it up (when we first got engaged), so I changed my withholdings to 0.

DH stays in the same one too. Only I get hosed.

Between this and all the hassle of changing my damn name, I'm really getting the raw end of this marriage deal. ;-)

My DH makes more than me, He adjusted his withholding to take out a higher amount.  We are a team, he can shoulder more of the tax bill then me.  Seems fair.  

theycallmelinz

jenna8984 said:

I do taxes....not professionally but I do have an accounting degree and I do my own as well as some friends'.

You guys can use this calculator to estimate what your tax will be. Remember that your TAXABLE income is not just your straight salary. Take out any 401k and medical pre-tax items. For example my taxable income is about $9,000 less than my annual salary.

I got what our taxes owed will be and then I checked my YTD paystub and DH's YTD paystub and we've already hit the amount that will be due. So any taxes we pay from here to Dec will be our refund. It's quite simple if you always withhold 0 and I even have them withhold an extra $40 a week just to be super sure.

http://www.moneychimp.com/features/tax_brackets.htm

@bubblegum1309 As you can see from the chart I linked, the first 73k of you & DH's income is taxed at 15%. Only above that is taxed at 25%, so your marginal rate when you combine and average is only about 17%.

 

SIB:

So the money they take out for my insurance and retirement isn't taxable, and therefore my taxable income is that amount(insurance and retirement) lower than my actual salary, correct?

jenna8984

@lulu441 Correct!

theycallmelinz

Thank you! 

See, this is the kind of shit I needed to know in high school. Not the damn quadratic formula or how to diagram a sentence. 

theartistformerlyknownas

jenna8984 said:

I do taxes....not professionally but I do have an accounting degree and I do my own as well as some friends'.

You guys can use this calculator to estimate what your tax will be. Remember that your TAXABLE income is not just your straight salary. Take out any 401k and medical pre-tax items. For example my taxable income is about $9,000 less than my annual salary.

I got what our taxes owed will be and then I checked my YTD paystub and DH's YTD paystub and we've already hit the amount that will be due. So any taxes we pay from here to Dec will be our refund. It's quite simple if you always withhold 0 and I even have them withhold an extra $40 a week just to be super sure.

http://www.moneychimp.com/features/tax_brackets.htm

@bubblegum1309 As you can see from the chart I linked, the first 73k of you & DH's income is taxed at 15%. Only above that is taxed at 25%, so your marginal rate when you combine and average is only about 17%.

 

I would never do this... I'd rather be able to make a little interest on that all year and have to make a payment, than have the government hold onto it for me just to refund it later! 

Bubblegum5586

jenna8984 said:

I do taxes....not professionally but I do have an accounting degree and I do my own as well as some friends'.

You guys can use this calculator to estimate what your tax will be. Remember that your TAXABLE income is not just your straight salary. Take out any 401k and medical pre-tax items. For example my taxable income is about $9,000 less than my annual salary.

I got what our taxes owed will be and then I checked my YTD paystub and DH's YTD paystub and we've already hit the amount that will be due. So any taxes we pay from here to Dec will be our refund. It's quite simple if you always withhold 0 and I even have them withhold an extra $40 a week just to be super sure.

http://www.moneychimp.com/features/tax_brackets.htm

@bubblegum1309 As you can see from the chart I linked, the first 73k of you & DH's income is taxed at 15%. Only above that is taxed at 25%, so your marginal rate when you combine and average is only about 17%.

 

Very Helpful! Thanks @jenna8984 !

jenna8984

@lolo883 I know that all the financial experts will tell you to get your liability perfectly in line with your withholdings so that you don't get a refund, and let the govt hold onto your money for a year. But I don't give a shit. I'd rather have the excitement of getting a few thousand dollars in a lump sum rather than make about $30 in interest over the year. Also most people (not me) wouldn't end up saving that money and earning the interest, they'd spend it.