A marriage is worth celebrating, but bringing up the marriage penalty may bring down the celebration. The marriage penalty occurs in the tax code when you pay more tax as a married couple than you would as two single filers making the same amount of money. This occurs throughout the federal tax code. The following are two examples:
The tax rate problem
If the tax tables did not differentiate between single and married, you could assume the married income required to move to the next highest tax rate would always be double that of a single filer. This is not the case.
As an example, when you’re a single filer, income above $91,901 is taxed at 28%. When you file a joint return with your spouse, the 28% rate starts at $153,101. You will notice that the beginning of the 28% tax bracket for married couples ($153,101) is not twice the $91,901 amount applied to each of you when you were single. The outcome is an increase in tax on your combined income over what you would have paid individually.
Accelerating the phase-outs
Another example of the marriage penalty occurs in the acceleration of phase-outs of personal exemptions and itemized deductions for married couples versus single filers. These deductions begin when your adjusted gross income (AGI) is greater than $313,800 if you’re married filing a joint return and $261,500 when you’re single. Think the marriage penalty only impacts upper income? Even the Earned Income Tax Credit (EITC) phase-outs favor single taxpayers over married taxpayers. A single mother of three can qualify for the EITC with income less than $48,340, where a married couple loses the EITC with combined income over $53,930.
Not surprisingly, there are some couples who simply decide not to marry to avoid the penalty, but obviously this option isn’t right for all couples. If you are planning to marry in the near future, do not be caught by surprise with a larger than expected tax bill. Call to review your situation.