Money Rehab with Nicole Lapin - Listener Intervention: "Marriage? Give me a (tax) break"

Episode Date: April 20, 2021

Nicole sits down with a listener; a newlywed, who is filing jointly for the first time and wants to know… How? When? Why? Nicole answers all of these questions and gives a little wedding gift: tax perks! Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

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Well, it doesn't. Charge for wasting our time. I will take a check. Like an old school check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. Our money rehabber today is from Los Angeles.

She doesn't want to share her name, which is, by the way, totally fine. Money talk is hard. Trust me, I get it. So whatever floats your boat and makes you most comfortable to talk about these topics is fine by me. And she got married this year and has a question about how to file as a married couple or in IRS speak, how to file jointly. So here's today's intervention. Hey girl, welcome to Money Rehab. Thank you so much for having me. So I hear you got married recently. I hear you got married recently. Yay, Mazel Tov.

I did. Thank you so much. So you did get married before December 31st of last year, right? Yes. Yeah, in October. Okay, great. Well, that means that you could file your taxes jointly or you could file them separately. There are these fancy acronyms like MFJ for married filing jointly or MFS for married filing separately. It sounds like a Myers-Briggs thing. It's not. And I hear that you have some questions. Yes, but to be honest, my question is just kind of like, how the heck do I do this? Yeah, you are not alone, sister. So basically, if you are married, then typically it is more advantageous to file jointly. In most cases, there's obviously

caveats and like an asterisk for a bunch of different exceptions. Have you had this conversation with the hubs? Kind of like us trying to figure it out briefly. And then we kind of just like gave up and we're like, well, we'll figure this out next week. But then it's always we'll figure this out next week. There's always the next week when taxes are in the discussion, right? Yeah. So did you guys have a conversation before you got married about any money stuff? Or is this like the first time you guys are talking about money stuff? I mean,

we've briefly talked about kind of just like basically like how we're going to do money, like bank account situations and what we want to do. But in terms of taxes, I think that both of us were kind of maybe too clueless to know what kind of conversation to have about that. MELANIE WARRICK- Did you guys fight about it, or were you loving and just wanted to kick it down the road? KELSEY ALPAIO- We probably thought a little bit

about it. When it comes to specifically taxes, not fighting, but just kind of like, what do we do? Who do we ask for help? Like Google, do we try to figure this out there? Well, you came to the right place. Yes. Yeah. We're very excited. He told me to take notes. Oh, good. I hope you are. This is a marital money rehab for the day. So first by filing jointly, it basically means that you get double the deduction in half the time.

So half the time means like typically you would have filed your taxes, hopefully, in the past. Your husband would have filed his taxes. And let's say it took you five hours each to do all of this. Now you get to do it all together in, let's say, five hours. So instead of 10 hours, you're doing it in half the time. And you get way more love in the deduction land. So last year, you both filed separate returns because you had to. You weren't married, obviously, so you didn't have the option as of December of the previous year. So, of course, filling out all of this stuff is so annoying and

takes a lot of time for you individually. But together, what happens is the standard deduction, which is $12,000, and it's actually a little bit higher. This year, it's $12,400. Now becomes $24,800 if you put it together. And you're probably like, duh, I'm so smart. Obviously, like that's just 12,400 times two, not a big deal. But what's cool is that all of your income gets smushed together. So if somebody made more or somebody made less than you are taxed, like as one loving married couple as you are. So you get a lot more benefits together than you would separately. How does that sound? Sounds great. What a great surprise to marriage. So do you know about what deductions are? I think you can just kind of bring me through it. I don't

know a lot. That's okay. So basically your tax return is like your report card to the government. I know a lot of people are scared about it, but oftentimes, and especially during COVID times, you could get more money back, which makes me very happy. Because of course, the government needs to know what your income is and what of that income is going to be taxed. The government, of course, doesn't get to tax all of the money that you make. They are deductions, which the government makes based on how you have spent your income. So common deductions are like ginormous health care costs, property taxes, mortgage interest. But back to the point about doubling your deduction,

in most cases, if you don't have children, having this higher deduction will give you a lower tax liability, which is definitely what you want. So it's just lowering the basis that the government can put their paws on. And another cool thing is that joint filers have different thresholds for certain deductions and tax breaks. And in a lot of cases, if you're doing it together, you have a better chance of qualifying for it. And there are a lot of other special credits that you qualify for and other married couples qualify for that other people who are not married do not. So like there is the child and dependent care tax credit and credits are even better than deductions. And separately, there's an adoption credit. And then there's also the earned income tax credit. So you'd be eligible if you made after taxes less than $21,710. Did you and the hubs make

less than that last year? No, we made more than that. Okay, so no extra special credits for you, but I'm glad we checked. Let's get you set up. First things first, you probably told your family and friends that you were getting hitched if they weren't there already. They probably saw it on the gram, but you also have to tell Uncle Sam, and he is probably not checking the gram. You have to do that by filing a form 8822 to be exact. Yes. Yes. Sorry.

Oh, good. Okay, great. Did you take your husband's last name? The pandemic actually made changing my name like incredibly difficult along with changing cities. And we were already in a different city when we got married and then we've moved again. So it made it twice as difficult. So as of right now, I still have my maiden name,

but there's like paperwork in the process of changing my name. Okay. So paperwork like for the Social Security Administration? Yeah. Cool. So for SS5, that sounds like it is in motion for you, which is good. So the thing is, you have to fill out the SS-5 form because the name on your Social Security card, so the SS for Social Security Administration, needs to match the name that you're using to file your taxes.

And then once you've done those little housekeeping things, you are officially ready to file as a married couple. Yay! It's actually the same form as if you're a filing single. There's just like another extra box. But once you get your name as one, then you obviously put that down. So all of that said, there are some rare-ish instances where it makes sense to file separately. Like if one of you has a boatload of student or medical debt, is that the case? No.

Luckily, that's not the case. Okay. You know, I often talk with couples who separately tell me that there is trouble in paradise. I'm assuming that's not the case, but just between us girls, I'm thinking you guys are staying married. Still happy. Still liking the decision. Good. Even through the pandemic, even through several cities.

Nicely done, sister. Okay. Still good. Okay, good. In the case that, you know, for our listeners, if there is honestly some issues going on there and you're thinking about getting divorced, probably not the best idea to file jointly. But in other cases, it is really advantageous to do this together. And there is a lovely tax calculator. How excited are you to hear about this?

That's amazing. It actually is really handy. And I'll send you a calculator from the Tax Policy Center that you can just double check. It is more advantageous for both of you to MFJ, which stands for? Filed jointly. Married filing jointly. Yay. Okay. Already, like, it's making a lot more sense than it has ever before.

Okay, perfect. Yeah. I mean, the cool thing is that, you know, tax brackets are progressive in this country. So it means that, like, a first portion of your income is taxed at the lowest tax bracket. So when people say, you know, they jumped into a new tax bracket, so they're going to get taxed a bunch more, that's actually not the case. Just the extra amount is going to be taxed at a higher tax bracket. So like for everybody, you're only taxed 10% for the first about, you know, $10,000 you have. And then as you have more income incrementally, those are taxed at higher rates. But the whole shebang of what you make is not taxed at one rate. And so when you're filing together, you're only taxed, let's say, in the lowest tax bracket up to 10% on the first $10,000

that you make. But as a couple, that doubles. So if somebody made more and somebody made less, then you're only taxed at a 10% rate for up to about $20,000 because rates continue to increase after that on this sort of effective tax rate marginal situation. Does that make sense? Yeah, it makes sense. marginal situation. Does that make sense? Yeah, it makes sense. And today's tip you can take straight to the bank is that any financial help that comes from loved ones, family or friends comes with strings attached, whether you think it does or not. And that means any financial help in the way of money or just plain advice or doing your taxes for you. The sooner you can cut those financial strings, the better, because they just get thicker over time. Money Rehab is a

production of iHeartMedia. I'm your host, Nicole Lappin. Our producers are Morgan Lavoie and Catherine Law. Money Rehab is edited and engineered by Brandon Dickert with help from Josh Fisher. Executive producers are Mangesh Hatikader and Will Pearson. Huge thanks to the OG Money Rehab supervising producer, Michelle Lanz, for her pre-production and development work. And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.