All You Need to Know about Common Law Marriage and Taxes

Common-law marriage has been recognized in the United States since the 1870s, with rules still applying to unmarried couples meeting specific conditions while living together. Moving in with your partner is a significant step, but it’s essential to be aware of certain aspects before merging assets or liabilities. This article aims to acquaint you with the legal and financial implications of common-law marriage. Notably, your annual income tax returns will undergo notable changes. However, a positive aspect is that common-law partners can often benefit from tax savings by filing a joint return.

When a couple cohabitates and presents themselves as married to their family, friends, and community without a formal wedding ceremony or marriage license, they are in a common-law marriage. While it may seem outdated to some, common law marriage is recognized in ten states and the District of Columbia, with five other states having limited or restricted forms of it.

To validate a common-law marriage, couples typically need to meet specific requirements, which may vary slightly by jurisdiction. However, common prerequisites include:

The couple is typically required to cohabit for a duration specified by the state, often around 12 months.

Both partners must have the legal capacity to marry if they desire to do so. This entails the following:

Each partner must be 18 years of age or older. Each partner must possess the mental capacity to comprehend the legal implications. Both partners must be currently unmarried.

For a common-law marriage to be valid, the couple must have the intention to marry in the future within the legal framework.

Common-law partners must present themselves as married to the public. This involves actions such as sharing the same last name, referring to each other as husband or wife in public, or having joint credit cards and bank accounts.

If your relationship meets the criteria for a common-law marriage, you must indicate this on your tax return. Both partners in the common-law marriage are required to file their own tax returns with the Internal Revenue Service (IRS).

In addition to providing their personal details, they must include the name of their common-law partner, their individual net income, and social security number on their tax return. The IRS will then determine the benefits and tax credits for which the common-law couple qualifies based on their combined household income.

Yes, indeed. Similar to officially married couples, common-law partners must undergo a specific period of separation to be recognized as separated by the IRS.

During the year of separation, each partner can claim a portion of the common-law partner amount, which is determined when filing the tax return.

Filing your tax return as a common law couple offers several advantages, including the ability to combine medical expenses or charitable donations for maximum deductions. You may also qualify for a family tax cut to maximize your credits. Additionally, you can individually contribute to retirement savings accounts and claim spousal or common-law partner amounts if your partner earned less than a certain threshold in the following year. If you meet your state’s criteria for a common law couple, you can enjoy these benefits.

Common law partners are eligible to receive each other’s Social Security benefits. However, they must adhere to spousal benefit regulations, which necessitate demonstrating the duration of their cohabitation to qualify for these benefits on behalf of their partner.

When common-law partners file a joint tax return, they can leverage employer benefits to extend coverage to their spouses. Imagine you lack health insurance, whereas your common-law partner is covered through their job. By being recognized as their common-law partner, you gain health insurance coverage under their plan.

Filing your tax return as a common-law couple grants you access to several tax deductions applicable to both married and common-law partnerships. For instance, owning a home with your common-law spouse entitles you to a mortgage interest deduction. Furthermore, having children together opens up opportunities to claim additional credits or deductions.

Within the United States, gift tax exemptions extend to married couples, but common-law couples can also harness estate planning advantages. Leveraging the federal estate tax limit, common-law partners can access an unrestricted marital exemption through tax filing. In the absence of a will, inheritance laws govern property distribution upon the death of one partner in a common-law relationship.

Failing to file your tax return as a common-law partner could lead to accusations of fraudulent tax activity. The IRS typically uncovers inaccuracies in tax filings, potentially resulting in serious repercussions such as:

  • Reassessment of outstanding taxes and accrued interests;
  • Penalties;
  • Loss of survivor benefits from pensions.

Common law marriage is prevalent across much of the United States, with many couples opting not to formalize their union for reasons ranging from religious to financial considerations. Despite not being legally wed, the IRS treats these relationships equivalently to legal marriages. Filing as a common-law partner entitles you to the same legal benefits as married couples. It’s advisable to consult with a financial advisor before deciding to file tax returns as a common-law partner. This ensures you can navigate tax obligations both individually and as a couple effectively.