Anaya Nolan
Marriage can bring about changes in one's tax situation, and common-law marriages are no exception. In some countries, common-law marriages are recognized for tax purposes, allowing couples to file their taxes jointly and avail of certain tax benefits. However, the recognition of common-law marriages for tax purposes varies across different states and countries, with specific requirements that need to be met. These requirements may include the duration of cohabitation, the capacity to marry, and mutual intention to be married. It is important for individuals in common-law marriages to understand the specific laws and regulations pertaining to tax breaks in their respective locations.
Characteristics and Values Table for Common-Law Marriage Tax Breaks
| Characteristics | Values |
|---|---|
| Tax Credits | Ability to transfer some tax credits from spouse's return to yours and claim all or part of certain amounts that your spouse or common-law partner qualifies for. |
| Non-refundable Tax Credits | Ability to share with your partner to reduce their overall tax liability. |
| Pension Income | Ability to split with a partner to reduce overall tax liability. |
| Proof of Marriage | Must be able to prove you've been living in a common-law relationship, whereas a marriage certificate acts as proof for legally married couples. |
| Filing Status | Must file an individual tax return and identify your marital status. |
| Tax Liability | When filing jointly, each spouse is responsible for taxes in full. |
| Tax Benefits | Ability to claim education tax credits, deduct student loan interest, and claim credits for children and childcare expenses. |
| Marital Status Change | Must update records with the Canada Revenue Agency or the Social Security Administration (SSA) in the US. |
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What You'll Learn
Common-law marriage recognised in some US states
A common-law marriage is an informal marriage where couples do not have a marriage license, ceremony, or certificate. Only a handful of states in the US recognize common-law marriages, and each has its own rules and requirements that need to be met to qualify for legal protections and benefits.
The following US states recognize common-law marriages (fully or with limitations):
- Alabama (if created before January 1, 2017)
- Colorado
- District of Columbia
- Florida (if created before January 1, 1968)
- Georgia (if created before January 1, 1997)
- Idaho (if created before January 1, 1996)
- Indiana (if created before January 1, 1958)
- Iowa
- Kansas
- Montana
- New Hampshire
- Ohio (if created before October 10, 1991)
- Oklahoma
- Pennsylvania (if created before 2005 or 2003)
- Rhode Island
- South Carolina
- Texas
- Utah
Some states have abolished common-law marriage but still recognize such unions formed before a certain date or for a specific purpose. For example, if a couple with a common-law marriage in Colorado moves to Ohio, a state with limited recognition of such marriages, Ohio will still recognize their union as a legal marriage.
It is important to note that the law is changing in some states, and it is recommended to seek legal advice to determine if one's marital relationship is recognized as a common-law marriage in their state of residence.
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Common-law couples can file taxes jointly
In the United States, common-law marriage is recognised as a form of legal marriage in certain states, such as Texas. Couples in a legally-recognised common-law marriage in the state where it began can choose to file their taxes jointly, as 'Married Filing Jointly' or 'Married Filing Separately'.
While filing taxes jointly may offer some benefits, such as a lower tax rate, the ability to claim education tax credits, and deduct student loan interest, there are also potential risks involved. For example, in the case of a separation, common-law marriages cannot be dissolved through a common-law divorce, and the couple would need to go through the same divorce process as a legally married couple. Additionally, when filing jointly, each partner becomes individually responsible for the taxes in full.
In Canada, common-law couples are required to file individual tax returns, regardless of their marital status. However, they can still benefit from sharing non-refundable tax credits with their partner to reduce their overall tax liability. They may also be able to split pension income to further reduce their tax burden.
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Common-law couples must notify the CRA of their status
In Canada, common-law couples must notify the Canada Revenue Agency (CRA) about their status. This is because a person's marital status has an impact on the amount of benefits and credits they receive. The CRA recalculates benefit and credit payments based on the individual's adjusted family net income (AFNI), which includes the income of their spouse or common-law partner.
To be considered common-law partners in Canada, couples must have lived together in a conjugal relationship for at least 12 months. Alternatively, if a couple lives with a child they share by birth or adoption, or if one supports the other's child, they are automatically considered common-law partners.
There are several ways to notify the CRA of a change in marital status. This can be done online through the individual's CRA My Account, by phone, or by filing form RC65. It is important to note that the CRA only accepts collect calls made through a telephone operator. Individuals should also not wait until tax filing season to update their information. Instead, they should notify the CRA by the end of the following month after their status has changed. For example, if an individual's status changed in March, they must inform the CRA by the end of April.
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Common-law couples can transfer tax credits
In Canada, common-law couples can transfer tax credits. The tax rules are the same for common-law partners and married couples. If you meet the definition of a common-law relationship in Canada, you must disclose your relationship status and information about your partner when you file your tax return. The Canada Revenue Agency (CRA) considers you married for tax purposes if you meet the CRA's definition of a common-law couple.
The definition of a common-law relationship varies from province to province. However, according to the federal Income Tax Act, your marital status changes to common-law when you've been living with your significant other for 12 months or more. Other situations that classify as a common-law arrangement include living with someone with whom you share a child, either as a birth parent or under a custodial agreement.
Common-law couples can transfer some tax credits from their spouse's return to theirs and claim all or part of certain amounts that their spouse or common-law partner qualifies for, if they do not need to use them. They can also share some non-refundable tax credits with their partner to reduce their overall tax liability.
In the United States, common-law marriage is recognized in some states, such as Texas. Common-law couples in these states may be able to file taxes jointly and claim the same tax benefits as married couples, such as a lower tax rate, education tax credits, and deductions for student loan interest. However, there may be risks associated with filing taxes jointly as a common-law couple, and it is important to understand the specific laws and regulations in your state.
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Common-law couples cannot file joint income tax returns in Canada
In Canada, common-law couples cannot file joint income tax returns. Instead, they must file individual tax returns and indicate their marital status and the name of their partner on the return.
The filing process is the same for married, common-law, and separated couples. Each individual must file a tax return and identify their marital status. If a couple has been living apart for at least 90 days due to a breakdown in the relationship, they should mark themselves as "separated" on their tax return.
While common-law couples cannot file joint tax returns, they can still benefit from strategic tax planning, often resulting in lower overall taxes and increased benefits. These advantages may include income splitting, combining deductions and credits, and optimizing tax savings by pooling certain expenses, such as charitable donations and medical expenses.
Additionally, common-law couples can transfer unused credits, such as tuition amounts, age amounts, disability amounts, and pension income amounts, to their partner. They can also split pension income to reduce their overall tax liability.
It is important to accurately report one's marital status when filing a tax return in Canada. Failing to do so may result in penalties related to benefits received that one may not have qualified for if the correct common-law status had been reported.
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Frequently asked questions
A common-law marriage is a marriage that is recognised by the state but was not formally solemnised through a wedding ceremony. In the US, common-law marriages are recognised by the Internal Revenue Service (IRS) if they are recognised by the state in which the taxpayers reside.
In the US, common-law marriages are recognised by the IRS and can therefore impact your tax situation. In states that recognise common-law marriages, couples are allowed to file their taxes together. However, the requirements to gain marital status vary by state.
Common-law marriages can provide tax benefits similar to traditional marriages, such as lower tax rates, the ability to transfer tax credits, and the ability to split pension income. In the US, a common-law wife with no gross income is entitled to an exemption of $600 for a separate income tax return.
