As DINKs, you and your partner have paying jobs with no kids. You could be married or unmarried but have decided to be kid-free.
With no financial responsibility that comes with raising children, DINKs have extra disposable income. But what are the tax implications of a DINK lifestyle? Will you pay more taxes? Are there any tax benefits or drawbacks for DINK households? Find out below.
Tax benefits for DINKs
While tax credits and deductions can significantly lower a taxpayer's liability, they depend on various factors such as filing status, income level, expenses, etc.
If you are in a DINK relationship, the credits and deductions available to you and their amount depend largely on your individual income level and filing status, since the IRS may only allow you to file a single tax return. If you are married or in a common law marriage, you have the option of filing jointly, giving you access to greater tax benefits.
Depending on your type of DINK relationship, here are examples of credits and deductions you may qualify for.
Tax benefits for unmarried DINKs
As unmarried DINKs, you are living together as a couple with both partners earning an income but not legally married. While you won’t be able to file taxes jointly based on your unmarried status, you can still find certain tax advantages in your status, depending on your income and expenses.
For example, you can claim education tax credits. And if you are a low to moderate-income worker, you may qualify for the earned income tax credit (EITC). Also, filing individually enables you to benefit from lower tax brackets in cases where there is a large discrepancy between incomes.
Tax benefits for cohabiting DINKs
You and your partner have decided to share a household. While you can manage joint expenses, buy a house together, and make financial decisions together, you still have to file your taxes as single individuals.
If you own a home together, an example of tax breaks you can enjoy as DINKs is the mortgage interest deductions. This allows you to cut your tax bill by the amount of mortgage interest you’ve paid during the tax year. As a single filer, you can deduct the interest on mortgages up to $750,000.
Tax benefits for married DINKs
As married DINKs, you may be eligible for more tax breaks since you now have the additional option of filing jointly. For example, if one partner is a high-income earner, they may find themselves in a lower tax bracket by filing jointly. Another advantage is that a partner can leave assets to the other without incurring estate tax.
Tax drawbacks for DINKs
While living a child-free lifestyle and choosing to focus on your careers presents financial benefits, be aware that there are tax drawbacks that come with being DINKs. Some of them are:
Marriage penalty
If you have similar incomes and decide to file jointly, the "marriage penalty" could push you into higher tax brackets, increasing your household's tax bill.
Ineligible for tax breaks for parents
Since you don’t have kids, you won’t also have access to helpful tax breaks designed for parents, like the Child and Dependent Care Tax Credit, which allows parents to claim up to $3000 per child below the age of 13.
Under the Child Tax Credit, American parents can claim up to $2000 for a child not older than 17. The American Opportunity Tax Credit and 529 State Tax Plans are some other examples of tax breaks for parents.
Lower earned income tax credit
Although DINKs can claim Earned Income Tax Credit, the credit amount increases with the number of children. Also, claiming the EITC without a qualifying child, one partner has to be within the age range of 25 and 65.
Partner with the PA tax experts for DINK households
Filing taxes is never a straightforward affair, even more so for DINK households. If you are not confident with filing your taxes as a DINK or want to know more credits and deductions you may be eligible for, contact the tax experts at Lang Faylor Chomo. Our tax experts will assess your unique situation and help you maximize your tax benefits.