What to Know About Health Insurance and Taxes When You Get Married

I recently presented a webinar to Morningstar’s women employees to help with their finances. I focused on insurance, taxes, and saving for retirement. The participants were enthusiastic about the information, and I got a number of great questions. I’d like to share them with you, along with my answers. And remember, you don’t need to be a woman to benefit from increasing your financial knowledge! In Part 1, I’ll address the insurance and tax questions. Stay tuned for Part 2 on retirement saving.

Health Insurance

Q: Regarding health insurance, do you have any tips for deciding whether to keep your employee plan or switch to your partner’s after getting married?

A: This is a great question that does not come with a simple answer. Here are the factors to consider.

Financial:

• Is one plan less expensive than the other?
• What are the deductibles and copays?
• What are the maximum benefits?
• Do any of the plans exclude coverage for areas of importance to you, such as maternity or mental health?
• Does one plan provide better coverage for emergency services and surgical procedures than the other?
• Do any of the plans include dental or vision?
• What future increases can be expected?
• How financially stable are the insurers?

Practical:

• Does each plan include your preferred providers?
• Does one plan have more “red tape” than the other?
• Is one plan an HMO (where you will largely be limited to one network of providers) or a PPO (where you can generally see any provider of your choosing)?
• Is either job more stable or long term than the other? Although you could switch coverage to the other spouse’s plan or choose limited continuation through Cobra, it might be challenging to switch, restart your deductible tally, and potentially change providers.

Once you have evaluated all of these factors, you can make a good choice for your health insurance.

Filing Jointly: Is It Always Better?

Q: I’m in the first year after getting married. Is it always advantageous to file jointly? Does it matter if you were only married part of the year?

A: It’s not always advantageous for married couples to file jointly. The best way to find out is to actually calculate your total tax both ways—filing jointly or filing separately.

Note that your marital status for tax purposes is determined at the end of the year. If you are married on Dec. 31, the IRS treats you as married all year. So, your filing options for your first year of marriage are married filing jointly or married filing separately. You cannot file as single or head of household.

In most cases, it will be advantageous to file jointly. Joint tax brackets are broader than single tax brackets, so it’s likely joint tax will be lower than the total tax for each of you filing separately. Additionally, filing jointly allows you to combine deductions and credits as well as claim a higher standard deduction than for single filers.

At times, it could be beneficial to file separately. For example, if one spouse has significantly higher income (and it won’t be considered “community” earnings), filing separately might avoid pushing the higher earning spouse into a higher tax bracket. Another time filing separately could be best is when one spouse has student loan interest or high medical expenses. Filing separately could allow these deductions by avoiding percentage limitations imposed by filing jointly.

Again, the best way to choose how to file is to do the calculations both ways. Tax software can help; better yet, consult with a tax professional.

Wash-Sale Rule

Q: What kind of tax applies if one buys stock right after they sell it?

A: I believe you are asking about the wash-sale rule. This rule only applies if the sale resulted in a loss. If you sell stock at a gain and then buy it back within 30 days, you’ll pay tax on the gain, and the new stock you bought will have a higher cost basis (equal to what you paid). If you sell stock at a loss and replace it within 30 days, the IRS won’t let you take the write-off on your tax return, and your cost basis for the new shares will be increased by the amount of the loss.

To get around this rule, either wait 31 days to repurchase the stock or, if you really want to buy back right away, choose something similar that’s not identical. For example, if you sold Ford F, you might buy General Motors GM. If you sold a large-cap index fund, buy an actively managed large-cap fund or a large-cap growth index fund.

Caring for Parents

Q: Are there any dependent deductions if you are caring for aging parents or an adult child who is either a student or disabled?

A: Yes, you can potentially claim dependent tax benefits for all of these situations.

You can claim an elderly parent as a dependent if you meet the following requirements:

• Support: You must have provided more than half of your parent’s financial support for the year, considering food, housing, clothing, medical care, and other living expenses.
• Income: Your parent’s gross income for the year must be below a $5,050 (for 2024) not including Social Security benefits and other tax-exempt income.
• Living Situation: Your parent does not need to live with you, but they cannot be claimed as a dependent by someone else.
• You might also qualify for a credit for the cost of adult daycare or in-home care if you work.

You can claim your adult child as a dependent if they are a qualified student or permanently disabled.

To claim an adult child who is a student, the following requirements must be met:

• Relationship: The person must be your son, daughter, stepchild, adopted child, or a descendant of these.
• Age: The adult child must be over 18 and under 24 years old.
• Student Status: The child must be a full-time student for at least five months of the year.
• Support: You must provide more than half of their financial support for the year.

There is no age limit for claiming a disabled adult child as a dependent. To receive tax benefits, these requirements must be met:

• Relationship: The person must be your son, daughter, stepchild, adopted child, or a descendant of these.
• Disability: The person must be permanently and totally disabled, typically qualifying for Supplemental Security Income or other disability benefits.
• Support: You must provide more than half of their financial support for the year.

As with an elderly parent, to the extent adult daycare or in-home care is needed for your disabled child (and you work), you could qualify for additional credits.

Please know that this is a general summary of the rules, which are actually quite complex. I recommend consulting with a qualified tax professional to determine how these rules apply to you.

Donations Deduction

Q: We plan to donate less than $1,000 this year. Do we need to document the contributions even though we’ll likely be claiming the standard deduction?

A: No, it’s not necessary to document your donations under $1,000 if you plan to claim the standard deduction on your taxes. But before assuming you’ll be taking the standard deduction, be sure to add up all your potential deductions. You’ll need to include your charitable contributions, deductible mortgage interest, state and property taxes (up to $10,000 per year) and medical expenses greater than 7.5% of your adjusted gross income. If that total is more than the standard deduction, you’ll want to itemize—and document those contributions. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples.

If all the rules seem complicated, they are! Consulting a professional is a good idea to help in sorting through them all.