Thomas McGuire Authors Article on Tax Considerations for Illinois Newlyweds
March 12, 2015
Married couples can file single, joint returns for their taxes: one return for Federal taxes and one for the state of Illinois. If you were married in 2014 and are filing taxes as a married couple for the first time, here are some key points to keep in mind regarding your new status.
All income, deductions and credits are claimed on one jointly filed return rather than the need to file separate returns. For same sex couples who might previously have filed joint returns under Illinois’ civil unions law, there is no longer a need to file separate federal returns and then a joint Illinois return attaching “pro forma” federal numbers.
Generally speaking, the tax rates for married filing jointly are better than those for married filing separately or head of household. For example, if one spouse has little income and the other spouse has a lot, tax savings might be achieved if all deductions can be taken on one return rather than being allocated between two returns. However, in some situations, there is a “marriage penalty”.
Employer provided health insurance for same sex spouse is no longer taxable to the employed spouse. Previously, if an employed spouse’s employer provided health insurance to the employee’s partner, the insurance premiums would constitute taxable income.
An employed spouse has the ability to make a deductible IRA contribution for a non-employed spouse under certain circumstances.
Married filing jointly status can sometime result in a “marriage penalty,” usually where both spouses have a relatively equal amount of income. Each spouse individually might be in a lower tax bracket but when the incomes are combined the income ends up getting taxed in a higher tax bracket. Likewise, unmarried individuals can each elect to claim the standard deduction or to itemize deductions, depending upon which is more advantageous for their individual situation. However, a married couple filing jointly must choose one option or the other on a combined basis. If a couple tries to avoid the marriage penalty by choosing a filing status of married filing separately, there are a number of disadvantages, including: (a) married filing separately is the worst possible tax bracket to be in, (b) both spouses must either itemize or claim the standard deduction – one spouse can’t choose itemization and the other spouse can’t choose the standard deduction, and (c) loss of certain deductions or credits for married filing separately tax status (such as loss of education credits).
If one spouse fails to declare income or inflates deductions, both spouses will be jointly and severally liable for any tax, interest and penalties ultimately assessed. There are some forms of relief available, such as innocent spouse relief, but the requirements for relief are fairly onerous.
Written by: Thomas F. McGuire