Newly-Wed Tax Penalty!?!

[zombie boy 2000]

Can anyone here please explain what this is, and why it bit me and the wife in the ass with a vengeance? And since nothing but semantic gymnastic vomit seemed to be spewing from our tax preparer's worthless maw, I thought maybe someone here on the forum might be better able to enlighen me.
As in.... why did the mere fact that we are "newly married" warrant us being raked over the coals financially? Or better yet... why do we owe so much combined, when our combined income was screaming for a refund (as it has in the past when we were unmarried and making the same money, just not combined).
Any accountants out there care to explain this?
All I keep getting is "that's the Newly-Wed tax penalty for 'ya" and "Bush was supposed to DO something about that, but I guess he didn't".
WTF?!?:mad:

[tryrrthg]

I'm no accountant, but how long ago were you married?

If it was early in 2005 and you changed your withholding status to 'married' they take out less tax from your paycheck than they would if you were 'single' - you're not paying as much tax as you used to, which MAY bite you in the ass at the end of the year. There is an option to have your witholding status set to "married - at a single rate" which will take out the same amount of taxes as if you were not married, thus giving you a bigger tax "cushion" come tax time.

It all comes down to how much money you had taken out of your paycheck to pay taxes, and how many exemptions you claim on your paycheck...

or I'm just talking out of my ass. :eek:

[zombie boy 2000]

We were married June of 2005, and I never changed a thing on my withholding status.. so we're both rockin' and/or rollin' with single withholding on our paychecks. So is it my understanding that the situation could have been even worse if these changes had been made?
... and btw, I'm in no way getting the impression you're "talking out of your ass". Dailey's Tax Service -- now she was talking out of the collective ass of all of humanity.

[McLoki]

Is it the marrage penalty or a new thing for the newly married.

I know every year my wife and I would get back more money if we were single rather than married. (our combined personal deductions are lower than 2 single deductions.)

It does seem odd that they penalize you for being married. (it got better when we had kids, but that was 9 years into the marrage)

Michael

[zombie boy 2000]

It's my understanding (at least from the people I've spoken with) that this is something that takes a year, maybe two, to "iron out". Hence, the unofficial "newly wed tax penalty." But it is also my understanding that the numbers are crunched with very few variables taken into account, and that pretty much what you pay inversely effects what you owe. That's what confuses me...

[PhantomOG]

I was married in October, so for most of last year my wife and I had the "single" status (larger deductions) and our refund worked out quite nicely. The previous year I owed money, this year combined we got a very good refund.

[PolkThug]

Never noticed a problem, we file Married, Separate.

More info:
http://www.fool.com/taxes/2000/taxes000526.htm

[zombie boy 2000]

We were both under "single status" as well for half the year...
something just doesn't gel when held up against our previous year (incomes being the same, and so on). Maybe I just need to go to someone else next year....
Que sera, sera:(

[PhantomOG]

where did you go to file? H&R? just curious

[zombie boy 2000]

thanks for the link PolkThug.. I'll get my read on from now until April and see what I can do to best avoid this in the future.

[PolkThug]

The "marriage penalty" link in that first paragraph is also a good read.

[shack]

There is no "newly-wed" tax penalty either official or unofficial. There is a so called "marriage penalty" for a married couples in the greater than 15% tax rate bracket whereby two people that are married will pay more than two single individuals making the same amount. Currently through the the Jobs and Growth Tax Relief Reconciliation Act of 2003, one of the changes to the tax law was to reduce the impact of the "marriage penalty" on married couples who choose to file jointly on their income taxes. This was done by equalizing the standard deduction for singles and married couples and increasing the endpoint of the 15 percent tax bracket for married couples filing jointly.

What you may be experiencing is the fact that withholdings were taken out based on the fact that you were single for part of the year but since you got married you must pay taxes as though you were married for the entire year (similar to the dependent status of a newborn). The amount of your "tax" is not subject to interpretation, just the amount of your withholdings.

[zombie boy 2000]

where did you go to file? H&R? just curious
a Ma and Pa op that my wife has been going to for years.... and would hate to take my business to one of the big dogs (H&R, Jackson Hewitt, etc.) based on a misinformed whim grounded in a cruddy experience that was fair and couldn't be avoided....
We'll research our options immediately and make all necessary adjustments. I was just hoping to swing an upgrade or two courtesy of the USGOV, and here I am helping 'em "upgrade" whatever it is they "upgrade".
Maybe titanium Pez dispensers in a weightless environment for NASA:D

[PhantomOG]

What you may be experiencing is the fact that withholdings were taken out based on the fact that you were single for part of the year but since you got married you must pay taxes as though you were married for the entire year (similar to the dependent status of a newborn).

Aren't withholdings higher for single? So the refund would be bigger since you withheld too much? Ehh... I have no clue. Thank god for TurboTax and such programs. Even then, it was still a pain in the ass dealing with all my stock sales last year.

[zombie boy 2000]

What you may be experiencing is the fact that withholdings were taken out based on the fact that you were single for part of the year but since you got married you must pay taxes as though you were married for the entire year (similar to the dependent status of a newborn). The amount of your "tax" is not subject to interpretation, just the amount of your withholdings.

This rings of truth Shack...
And very well said. Thanks for the succint explanation. I had a hard time believing there was anything "interpretive" or "subjective" about our tax status.

[shack]

Aren't withholdings higher for single?

No. But....a lot of people set up their W-4 so that more is taken out than necessary...leading to higher refunds....something I have never understood. I expect to pay the government something every year and plan withholdings accordingly. No way I want them holding any money that belongs to me.

[PolkThug]

I use H&R TaxCut, if you can type, you can do your own taxes.

[jhermance]

Those government people just like to give it to you up the butt with no lube.

[MrNightly]

Those government people just like to give it to you up the butt with no lube.

And here's a well thought out argument. Thanks for the enlightenment. Or not.

[neomagus00]

I use H&R TaxCut, if you can type, you can do your own taxes.
but then you completely miss the intricacies of american tax law, which a good accountant is familiar with, which can save you much money...

out of curiosity, is taxcut good for more than a single year?

[Drumingman]

I think that the higher taxes for married folks came about during the Clinton years. Of course I could be wrong but thats what I remember, and the Chinese getting our Nuclear Secrets and how the President made Monica use tobacco products.

[John K.]

ZB, hopefully the tax preparer did your return correctly, but you should note that there's no marriage tax penalty in most cases and certainly not a special one that applies to newlyweds. The Motley Fools article that was linked had good info for 2000 when it was written, but the tax laws have changed. A married couple now has a standard deduction double that of a single individual and their tax brackets(through 15%) end at amounts double of that where they end for single returns. The result is that if the couple each earns exactly the same amount, their tax when filing a joint return is exactly the same as their combined taxes would be if they were still single. If one of them earns significantly more than the other, filing a joint return actually results in a lower tax than their combined taxes would be if single. In most situations a married couple benefit from filing a joint return; in a very few cases it's better to file separately if they have unusually large itemized deductions(e.g. medical)which could be used more fully on separate returns.

Another point on which I sometimes berate clients or even friends is the idea that it's nice to get a refund. As shack mentioned, all this means is that you've given the federal government an interest-free loan of your money. Take all of the withholding allowances on your W-4s to which you reasonably would be entitled, so that you get no refund or even owe a little bit more with your return.