Q: I recently got married. My husband and I are trying to figure out which filing status makes the most sense for us: married, filing jointly or married, filing separately. We were led to believe that perhaps for our first year of marriage for tax purposes, we should file separately because we don't own a house and my husband is subject to an obscene AMT which will also affect me, if we file jointly. We can't seem to get a straight answer regarding which filing status makes sense. TurboTax actually suggested that I keep my W4 at a "Single" status for the remainder of the year. We are really confused by it all.
Amy
A: The first year of marriage involves a lot of transition, and people often forget about the tax side of this. Let's review a few tax aspects of the marriage transition...
There are a few preliminary considerations:
Withholding Status at Work. This is probably the most confusing aspect. The Form W-4 you give to your employer gives you three statuses--single, married, or "married, but withhold at the higher single rate." Believe it or not, options 1 and 3 will get you to the same place. The middle choice ("married") is only appropriate if there is one breadwinner in the family. Many people get confused by this. If both spouses work and choose "married" (which seems intuitive), they will benefit from the broader married tax brackets twice. I've never once successfully explained this to a client, so just take my word on it. Check either "single" or "married, but..." if you both work.
Married Filing Jointly vs. Married Filing Separately. I've already commented on this at length, so I'll refer you there. The quick and dirty? MFJ is the winner 99 out of 100 times.
Beware of Marriage Penalties. One of the unfortunate downsides of marriage is that not every income phaseout and tax break is available at 200% of the single rates. The most common marriage penalties for new couples are found in Roth IRA and IRA eligibility, the AMT standard deduction, and the child tax credit income phaseout.
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