Considering federal tax consequences, is it more advantageous for my partner and I to get married or stay single?
My partner and I each earn about $70,000 annually. One of us is retired and receives a pension from the federal government and now works full-time. The other has a 20-year-old in college. Considering federal tax consequences, is it more advantageous for my partner and I to get married or stay single?
I'll let the other advisors answer the tax question- but I will throw in you might want to wait until you 20 year old has applied for their last year of financial aid for college before getting married. Getting married would greatly increase you families income- and likely your assetts, this would likely increase the expected family contribution for your child college. Meaning you will have to pay more for the remainder of his time in school.
Beyond taxes this could be a big deal breaker for most people when choosing to get married or not.
Best of Luck
Since the domestic partnership is treated the same as a married couple, why not take the advantage by marrying each other? You will find a bigger standard deduction and others perks only for the couples. However, your income of $70k/person could put you on the fence, leaning either way. Unless the partner, who works full-time, continues to generate more income than $70k, it could jeopardize his Medicare premium by putting him in the next higher bracket for an additional monthly surcharge as a single. You need to sit down with a CPA or CFP who has extensive tax knowledge to review the tax return to make the appropriate recommendations. Meanwhile, if you do decide to stay single but still care for each other, get the estate planning documents done, and update each other as primary beneficiary in additional to adding contingent beneficiaries for all of your retirements accounts, pension plan, brokerage accounts, etc. That should be your priority. Best!
This is complicated. If your 20 year old is receiving financial aid, getting married could increase your Expected Family Contribution and reduce available financial aid.
Federal income tax considerations alone may not be sufficient to sway the decision. Ask your accountant to do a "what if" tax scenario to be certain. I am expecting that the difference will not be sufficient to sway such a big decision on its own.
Does the pension plan allow for non-spouse beneficiaries? If not, this could be important. If the spouse with the pension dies and the pension is lost, will the other spouse have sufficient resources to carry on?
Similarly with Social Security (although maybe less so since you may have similar earnings history) the surviving spouse would have choice of the larger of two benefit payments. So if one partner had a much higher benefit, the surviving spouse (but not unmarried partner) would have greater income security if married.
If you choose NOT to get married, make sure you have done thorough estate planning (will, power of attorney, medical directive). This is crucial for unmarried partners. If you die without a will, the state will pass assets to your living relatives - not to unmarried partners. I would advise working with a financial planner and an estate attorney to dig into these questions in more detail.
They don't call it the marriage penalty for nothing. But it depends upon which state you live in, how you are doing things - itemizing or taking the standard deduction etc... So I need many more details that what you provided but generally married filing separately is the worst except if a very few instances, then married filing jointly is next, and filing single is more advantageous.
So if its an older marriage, a second marriage, an LBGT marriage etc... and younger kids aren't directly involved, you need to think long and hard to consider whether the marriage penalty is worth it. I am for marriage and against taxes so it can be a dilemna and a balancing act. And some things aren't all about money as love comes before money. My recommendation to you is to seek someone who is well versed in taxes & filing taxes - a good CPA - to help you through all of the factors so you can put a better dollar figure on both outcomes.
Hope this helps, Dan Stewart CFA®
There may be more to consider than just the income tax.
- How long have you been partners?
- Do you maintain separate accounts or are they joint?
- Do you live in a community property Sate or not?
- Do you have estate planning documents and who are the beneficiaries? The partner of your kids?
- If there were a long-term care event, are you OK having the bills paid out of just your accounts or are your partners accounts on the line for the bills as well?
- Is your partner a beneficiary of your pension income or not?
- Will you both get Social Security payments and in what amounts? What would be the impact for survivors’ benefits if you were married?
You may want to invest some time and money in talking with a local Fee-Only CFP® professional to be sure you are aware of all the circumstances before you make the big decision.