Four Ways Marriage Can Affect Your Finances (That You May Not Have Thought Of)
You’ve finally found “The One” and you’re ready to make that life-long commitment “to have and to hold.” We all know that weddings are expensive. The average cost for a wedding these days is around $35,000 after all. But what about the costs of marriage itself? While many of us may be thinking things will be better as a dual income couple, there are sneaky financial surprises that can blind-side us. So while your head may be full of wedding plans and thoughts of a romantic honeymoon, here are a few things to consider before you tie the knot.
Taxes are probably the last thing on your mind right now. But if you are getting married this year, even if it’s in December, it will affect your taxes: how you file them and even how much you might pay. The American tax code is complicated and I am no expert. But I do know that the tax creates both a marriage tax penalty and a marriage tax bonus. Which category you will fall into depends on the disparity between your income and spouse-to-be’s income, and whether or not you have children.
A marriage tax penalty may happen if you and your future spouse have similar incomes or if one of is a single parent and eligible for the Earned Income Tax Credit (EITC). Your new combined income may phase you out of eligibility for this valuable tax credit. If one of you earns significantly more than the other, you may see a tax bonus due to the widening of the tax bracket for married couples. Check out this report from the Tax Foundation to learn more.
One big change I noticed the year after I got married was that when my husband and I filed jointly, we didn’t get double the deduction for our paid student loan interest. As single filers we each could deduct up to $2500 of the student loan interest we paid for that tax year. As married filing jointly our deduction didn’t double to $5000, it capped at $2500 for the household. This significantly reduced the amount of refund we received!
Student Loan Payments
Speaking of student loans, if you are paying under any of the Income Driven Repayment (IDR) plans, prepare for your payment to change when you recertify after getting married. All of the IDRs calculate your payment based on your household Discretionary Income (your Adjusted Gross Income (AGI) – your Gross income less certain deductions – less 150% of the poverty level for your family size). When you get married and file your taxes jointly your AGI will rise, but so may your family size. This will affect your student loan payment under these programs. If you file taxes as married filing separately your payment only your payment under an Income Based Repayment plan will consider just your income. If you do file separately you may lose valuable tax deductions and pay more in taxes.
When I got married I was paying under the Income Based Repayment plan and because I filed head of household with one child my student loan payment was just $35 each month. When I recertified after getting married and filing jointly my payment jumped to $235 a month! Ouch!
Student Loan Forgiveness
How does getting married affect student loan forgiveness? It depends on which loan forgiveness program you are looking at. If you are hoping to be granted loan forgiveness under the Public Service Loan Forgiveness program then you are aware that your loans will be forgiven after 120 on-time monthly payments through one of the Income Driven Repayment plans (among other qualifications). If your household income is much higher as a married person than it was as a single person, your Income Driven repayment amount may go up. And you may have your loans paid off before you make your 120 payments. Some private colleges also offer loan repayment benefits based on income. If you are lucky to have attended one of these colleges make sure getting married and having a higher household income won’t disqualify you.
Health Insurance and Other Benefits
Before my husband and I got married we both had health insurance. I covered myself and my daughter through a work policy. He worked in the service industry; as is typical of that industry his employer did not offer health insurance. Thankfully he qualified for MN Care, Minnesota’s Health Care Program for those with low incomes. When we got married he no longer qualified due to both my income and the fact that he was eligible to be covered under my insurance plan. This definitely hit our bottom line. Not only was there an increase in premiums, but my health insurance plan has a high deductible per person. He went from insurance with a low premium and minimal out-of-pocket costs, to a plan with higher premiums and out-of-pocket costs. My take home pay went down due to the premiums and contributing to my (er, I mean our) Health Savings Account (HAS).
If you are currently using any State, Federal, or County benefits you may want to consider how marriage and a higher income will impact your eligibility. You find out at Bridge to Benefits, which is a screening tool for benefits programs in Minnesota, Montana, South Dakota, and North Dakota. If you are not, but are wondering what impact getting married may have on your health insurance make sure to talk to your HR Benefits representative.
“…For Richer and Poorer…” takes on a whole new meaning when you consider these financial impacts of getting married. If you want to get some tips about how to successfully co-mingle your income, budget together as a couple, and/or make a plan to pay down pre-marital debt, LSS can help. Call us at 888.577.2227 for your free financial counseling session or get started online.
Author Shannon Doyle is a Certified Financial Counselor with LSS Financial Counseling.