I often get asked about the tax consequences of getting married. I hope this post answers a few of them. People often rush off to adjust their withholding allowances from Single-0 or 1 to Married 2 right after they get married. Don’t. This is often too much of a change, leading to clients owing tax. Instead, have your paychecks evaluated to determine how much your withholding should change, if at all. Or, you can stand pat and see if you need to adjust after a year or two.
Why do the withholding tables not work like they should? They were designed in another era, when it was less common for two spouses to work. If a wife quits her job right after getting married, then the tables make more sense.
Consider the case of a fictional couple, Tobias and Lindsay. Before getting married, Tobias was earning $100,000 as a therapist, and Lindsay was collecting a $100,000 a year from a family company. They did not own the home they lived in, so their tax situation was fairly simple. They would have each owed 18,500 in tax, before withholding, Or $37k combined. If they were married, they would owe 37,866 – for them, there’s an $866 marriage penalty! Something funny happens with the tax rates after you make 75k individually – below that, the married tables are exactly double the single tables, but after that, the tax rates move up faster for married individuals. Why? You can come to your own conclusions.
What’s worse is that Tobias and Lindsay both rushed out to change their withholding from Single -1 to Married – 2. At Single – 1, their withholding was 19,585 – they each were headed to a 1k refund. At married – 2, their withholding is all the way down to 13,303 each, 26,606 combined. Suddenly they owe over $10k in tax! If they left their withholding alone, they would have enough to cover the tax.
Moral of the story, don’t rush out to change your withholding. On newer W-4 forms, the single box will also say Married 2 incomes, and this makes sense.