The proposition of marriage can raise questions for same-sex couples who have successfully managed life together for years without being married. However, when thinking about marriage, consider the financial impact of saying “I do”.
If you are not married, you most likely file your income tax return as an “individual.” Your filing status naturally changes when you get married.
All married couples must file their tax returns as “married.” But is there a cost for doing so?
For many couples, being married can reduce their tax burden. Whether marriage saves money or results in higher taxes depends on factors such as the individuals’ income levels and whether the married couple files “jointly” or as “married filing separately.”
The enactment of the Tax Cuts and Jobs Act, effectively eliminated the so-called marriage penaty for virtually all combined incomes under $600,000. Consider the following examples: 
Assume that Heather has taxable income of $185,000 per year, all of which is ordinary income, which puts her in the 32% marginal federal income tax bracket as a single taxpayer. Based on the tax rate for a single individual, in 2023 Heather would pay $38,032 of federal income tax. Tanya has taxable income of $65,000 per year, all of which is ordinary income, which puts her in the 22% marginal federal income tax bracket as a single taxpayer. Based on the tax rate for a single individual, in 2023 Tanya would pay $9,878 of federal income tax. Unmarried, together their combined tax liability in 2023 would be $47,910. If Heather and Tanya marry and file a joint federal income tax return, their combined incomes will be $250,000, which will place them in the 24% marginal federal income tax bracket for married individuals filing a joint return. Married filing jointly, in 2023, their tax liability would be $46,800, a savings of $1,110.
However, the result would be an increase in tax if Heather and Tanya had higher incomes. Assume that Heather has taxable income of $360,000 per year, all of which is ordinary income, which puts her in the 35% marginal federal income tax bracket as a single taxpayer. Based on the tax rate for a single individual, in 2023 Heather would pay $97,895 of federal income tax. Tanya has taxable income of $350,000 per year, all of which is ordinary income, which also puts her in the 35% marginal federal income tax bracket as a single taxpayer. Based on the tax rate for a single individual, in 2023 Tanya would pay $94,395 of federal income tax. Unmarried, together their combined tax liability in 2023 would be $192,289. If Heather and Tanya marry and file a joint federal income tax return, their combined incomes will be $710,000, which will place them in the 37% marginal federal income tax bracket for married individuals filing a joint return. Married filing jointly, in 2023, their tax liability would be $192,614, a tax increase of $325 (a so-called “marriage penalty”).
Some couples with disparate incomes may find a lower income earner pulled into a higher marginal tax bracket when filing jointly. Accordingly, it is important to do the analysis.
Whether filing singly, as married but with separate returns, or jointly with a spouse, all taxpayers should carefully evaluate their particular circumstances with their tax advisors.
One of the most important benefits of marriage is the ability to protect your assets from future creditors.
In some states and the District of Columbia, married couples may take title to assets, such as their home and bank accounts, in a way that limits how creditors may attach those specially titled assets. This is particularly helpful when, for example, one member of the couple files for bankruptcy because of an illness, a failed business, or being “upside-down” on a big mortgage.
This special titling is called Tenants by the Entirety (TBE). In states where it is permitted, once a couple is married, they may title some or all of their assets as TBE. The creditors of either spouse cannot attach the assets titled as TBE to the married couple. If the couple owned the assets in a so-called “joint tenancy,” a creditor of either could be able to take some or all of the jointly titled property. Of course, a TBE will not protect the property from creditors holding a couple’s joint liabilities (that is, both spouses are liable).
Benefits, Retirement, and Social Security
A couple anticipating marriage should not ignore the different levels and types of benefits afforded to married couples versus domestic partners. In many circumstances, benefits may not be available to domestic partners that are available to married couples.
If your employer offers spousal benefits such as health insurance, married couples may be able to “benefit shop,” choosing the employer’s benefit plan that offers the best benefits at the best price.
Being married provides a distinct advantage in the case of benefits received by the spouse of an employee, as such benefits are generally received by the employee without being subjected to income tax.
A same-sex couple should also consider the potential Social Security benefits available to them as a married couple. An individual is eligible for Social Security retirement benefits on his or her own work record. Married couples, however, are eligible for retirement and survivorship benefits based on their spouse’s work record, whether or not they are entitled to benefits of their own. For some couples, marriage could mean greater financial security during retirement, especially if a spouse dies and the survivor is able to receive a larger retirement benefit based on the spouse’s work record.
There are nuances and complexities to claiming Social Security benefits for married couples. The Social Security Administration urges couples to file a claim, even if they are not certain they are eligible.
For couples in a legally recognized civil union, there may be some benefits available. In any case, it is important to consider what is available and realize that without a legally recognized relationship, benefits may not be available.
Your Stuff, My Stuff, Our Stuff
With increased benefits come increased responsibilities. Marriage is a contract, and the laws of your state of residence determine your responsibilities.
Unless you have a valid prenuptial agreement, saying “I do” may be like giving away half of your assets.
Equitable distribution means generally that your marital assets are divided “equitably” by a judge in the event of divorce. Before getting married, couples should consult with an attorney skilled in domestic relations law to understand their property rights.
Aside from matters of property, described above, marriage offers intangible benefits too. One such benefit is legally recognized rights, such as the ability to have control when one member of a couple is sick or dies. Now that same-sex marriage is recognized, same-sex married couples can enjoy the peace of mind of knowing that they are legal next-of-kin when making decisions for a sick spouse and will be in control of the spouse’s estate at death, absent other arrangements.
Nevertheless, there is no substitute for creating a financial and estate plan by getting your documents in order—even if you are married.
With the opportunity to marry many same-sex couples may find themselves considering the economic consequences of marriage. While one cannot reduce the decision to marry to a numerical analysis, it is better to know what lies ahead financially when making a life-changing decision. One thing is certain: there is no substitute getting good, coordinated advice from your legal, tax, and financial advisors.
For more information, please contact your PNC Private Bank advisor.