8 tax benefits for married couples

This article will ... Highlight the tax benefits of marriage, including lower tax rates for some. Explain the estate tax advantage for married couples. Outline the higher limits for married couples who make pre-tax contributions to their traditional IRA.

It’s no secret that married households often enjoy greater financial stability than their single peers, compliments of their combined incomes, shared expenses, and spousal health insurance coverage. For many couples, however, the financial perks of tying the knot also include a lower tax liability.

While the so-called marriage tax penalty gets much media attention — and it persists, particularly for couples who earn a similar salary — a large number of married taxpayers are surprised to find that they end up paying less to Uncle Sam after they say “I do.”

Lower tax rate

“Couples with significant earning differences between the spouses typically reap the greatest savings,” said President of Coastal Wealth’s Private Client Group in Ft. Lauderdale, Florida, Chad Tourin, a financial professional, attorney, and accountant.

That’s because both spouses’ incomes are combined in determining their tax bracket.

“Thus, if one spouse earns considerably less than the other, they may be pulled down into a lower tax bracket and in turn reduce their overall tax liability,” said Tourin.

To illustrate: A single individual earning $200,000 a year would be subject to the 32 percent marginal tax rate in 2024, but drop to the 24 percent tax rate as a married taxpayer filing jointly if their spouse did not produce an income, or if their combined household income remained below the 24 percent tax bracket cut-off: $383,900 threshold for tax year 2024 or $394,600 for tax year 2025.^1,2

Beyond the lower tax bracket, which alone can yield a significant savings, married couples may also benefit from the following tax savings opportunities:

• Combined federal gift and estate tax limit
• Estate tax advantage
• Higher standard deduction
• Spousal IRA contributions
• FSA contributions
• Personal residence exemption
• Earned Income Tax Credit

Combined federal estate and gift tax limit

A married couple can give away twice as much money as single taxpayers without triggering federal gift and estate taxes.

For tax year 2024 (the tax returns due by April 15, 2025), the annual gift tax exclusion amount is $18,000 per person, per recipient. Thus, each spouse could give their child $18,000 for a combined tax-free gift of $36,000 per year. They could also gift $36,000 to any number of additional friends or family members in a given year without having to file a gift tax return. That limit jumps to $19,000 for tax year 2025. (Related: 5 financial gift ideas for children)

In addition to the annual gift tax exclusion limit, married couples in 2024 can gift up to $27.2 million ($13.61 million per person) over the course of their lifetime to beneficiaries without having to pay any federal or gift tax. Barring new legislation, that dollar limit is slated to be cut in half after 2025.³ (Any gifts made under the annual gift tax are not included in the lifetime limit.)

Married couples who do proper planning can leverage these higher limits to reduce the size of their taxable estate. A financial professional or estate planning attorney can be a valuable resource in the process.

Estate tax advantages

Because the annual and lifetime exclusion limits are so high, most taxpayers won’t have to worry about estate taxes when they pass assets along to their heirs.

High net worth married couples, however, can potentially delay paying taxes on their estate a little longer by claiming the valuable estate tax marital deduction, which permits married individuals to transfer an unlimited amount of assets to their spouse tax-free at any time during their lifetime, or after they die. (Related: Married to a non-citizen? 3 estate planning traps)

That temporarily shelters taxes on their estate until the second spouse passes away, giving their assets the opportunity to continue delivering returns, which may help them leave a larger legacy behind. In addition, the second spouse is able to use any of the lifetime exclusion not used by the first. So, if all of the first spouse’s assets were protected by the marital deduction, the second spouse may be able to use the full combined exclusion of $27.2 million when they pass.

Such deductions, however, can be complex, especially if trusts are involved or the surviving spouse remarries, and they are not the right financial fit for everyone. (Related: 5 retirement tax planning strategies)

To select a strategy that’s best for you, it is wise to consult an estate planning professional.

Higher standard deduction

Married couples have two tax filing options: married filing jointly and married filing separately. The filing status you choose will have implications for your income tax bracket and for your standard deduction.

For tax year 2024, the standard deduction is $14,600 for single filers, $29,200 for married couples filing jointly, and $21,900 for heads of households. It climbs to $15,000 for single filers, $30,000 for married couples filing jointly, and $22,500 for heads of household for tax year 2025.

A financial professional can help you determine which filing status is most beneficial to you.

“It is true that marriage can come with tax advantages, but there may also be disadvantages, depending on myriad of factors, including things such income levels, debt levels, and health issues — to name a few,” said Tourin. “This year, perhaps more than any other, it is important to work with a tax professional. Aside from leaving deductions and credits on the table, there are many nuanced tax rules that arose this year to address the financial issues caused by the pandemic. As a result of the COVID stimulus packages, PPP loan forgiveness, changes to the child tax credit, etc. people who normally receive refunds may owe taxes and people who normally owe taxes may receive refunds.”

The Tax Policy Center provides a “marriage calculator” to determine whether getting married resulted in a penalty or bonus for you.

Spousal IRA contributions

If you aren’t earning a paycheck, you can’t fund an individual retirement account (IRA) — if you’re single. But once you say “I do” you may be able to contribute to an IRA based on your spouse’s income.

According to the IRS, each spouse can make a tax-deductible contribution up to the contribution limit, which is $7,000 for tax years 2024 and 2025. That doubles your family’s tax deduction in the year you contribute. Those age 50 and older may contribute an extra $1,000 annually. And beginning on January 1, 2025, a new provision will enable those age 60 to 63 to make higher catch-up contributions of up to $11,250 per year. 

“In situations where one spouse is the homemaker, married couples have a tax and retirement planning benefit not available to non-married couples,” said Tourin. “This benefit comes in the form of being able to contribute to a spousal IRA.”

Higher-income taxpayers, who might otherwise be ineligible to contribute to a tax-deductible IRA due to income limits, may also find that they are suddenly able to contribute again after they get married. (Related: How a 401(k), Roth combo can help younger savers)

Why? The income phaseout limits are far higher for married taxpayers than they are for singles.

For example, married couples filing jointly who are covered by a retirement plan at work may take a full deduction for their IRA contribution if they make $123,000 or less in 2024. They may contribute a reduced amount if they earn up to $143,000 in 2024, after which point tax deductible contributions to an IRA are not permitted. Those limits rise to $126,000 and $146,000 respectively in 2025.⁴

By comparison, single or head of household tax filers may fully fund their traditional IRA if they earn $77,000 in tax year 2024 and make a partial deduction until their income hits $87,000 in 2024. Those limits rise to $79,000 and $89,000 respectively in 2025. 

FSA contributions

If you and your spouse have separate health insurance through your employer and access to a flexible spending account (FSA), you may both take full advantage and lower your annual health care costs.

FSAs are funded with pretax dollars through payroll deductions and must be used for qualified medical expenses not covered by your health plan, including copays and deductibles. The savings are equivalent to your tax bracket.

The IRS allows taxpayers to contribute up to $3,200 per person in tax year 2024 ($3,300 in 2025). As such, married couples who both fund an FSA may be able to pay for up to $6,400 in medical expenses on a pretax basis combined in 2024 and $6,600 in 2025. But they cannot apply both of their FSAs to the same expenses.

Take note, too, that FSAs are funded on a “use it or lose it” basis. The money you contribute must be used within the calendar year. Any money remaining in the account at year-end is forfeited, so be sure you don’t overcontribute. For guidance on how much to contribute, try tallying your medical expenses in prior years. (Related: FSA vs. HSA)

Personal residence exemption

If you own a home with your spouse, you may be able to pocket more of the proceeds from the sale of your property — up to twice as much.

The personal residence exemption, which excludes a portion of the gain from the sale of a primary residence, is $500,000 for married couples, compared with $250,000 for single homeowners.

Earned income tax credit

Depending on your financial circumstances, couples may also benefit (or be penalized) by the earned income tax credit (EITC), which is designed to help low- to moderate-income workers.

According to the Tax Policy Center, taxpayers who might qualify for the EITC can suffer a significant marriage penalty if one spouse’s income disqualifies the couple from claiming it. A couple with two children and $40,000 in total earnings, split evenly between spouses, would incur a marriage penalty and pay $2,357 more in taxes by filing jointly than they would if they were unmarried, with one filing as single and the other filing as head of household.

But marriage can also increase the EITC if a nonworking parent files jointly with a low-earning worker, the Tax Policy Center determined.⁵

A tax credit is worth more than a deduction because it’s a dollar-for-dollar reduction of your tax liability. Some tax credits (known as “refundable credits”) can also generate a bigger refund by reducing your tax liability to a negative number. Tax deductions, by contrast, reduce how much of your income is subject to taxation.⁶

Conclusion

Financial perks are no reason to tie the knot, of course, but they can make life a little easier for newlyweds.

A financial professional can help you determine how marriage might affect your tax bill—for better or worse—so you can plan ahead and take advantage of every tax break to which you may be entitled.

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