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What is the Marriage Penalty Tax?

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Wedding CakeWhen we were married almost two years ago, the last thing on my mind was a little tax concept known as the marriage penalty. We were worried about whether the caterer was going to get our food right, how badly our respective best man or maid of honor were going to embarrass us, and whether the night would go off without a hitch. Looking back, it was a little silly because while there were little snags here or there, it was a wonderful night and, hopefully, everyone had a great time.

We were married in February so it wasn’t until a year later that I first looked at the married filing jointly tax brackets. Take a quick peek at the tax brackets, notice that once you get past the 15% tax bracket, the married filing jointly ranges stop being double that of the single ranges. The ranges get tighter and tighter as you move up in income.

That’s the marriage penalty.

In reality, it’s not that as bad as it looks. If you’re in a single income household, you generally benefit from going from a single filer to a married filing jointly. If you have a two income household, chances are you still pay a little less. The penalty only kicks when the two of you both earn over $68,000 each (where your next dollar as a MFJ puts you in the 28% bracket, whereas you would stay in the 25% as a single filer for another $14,000). Back when most households were single income, the penalty wasn’t a big deal. It’s becoming a much bigger deal now.

While this may seem like a great argument against marriage, it turns out there are significant financial benefits to tying the knot. There can be significant insurance savings when you add someone to a policy (you don’t need to be married to add someone to an auto insurance policy though), there are Social Security survivor benefits, and finally there are inheritance benefits (if you die, your spouse gets your estate tax free, yipee!).

So while the marriage penalty does stink, it’s not bad enough to use as an excuse against marriage. :)

(Photo: pengrin)

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53 Responses to “What is the Marriage Penalty Tax?”

  1. Kyle says:

    The prices we pay to keep our women happy… :-) Looking at the way my wife and I stand we are pushing the 28% bracket but after deductions and everything we should be safely in the 25% bracket. Crazy how they make you pay money to get married (a marriage license) then they charge you extra for being married..

    • Not only that, but there’s not an easy opt-out clause like there is with a driver’s license, fishing license, etc.

    • Keith says:

      The other issue is when one spouse makes significantly more. Wife makes $40K and gets taxed at 15% (we claim 0 exemptions), but when you combine the husband’s income of say $130K and tack hers on top the tax rate jumps much higher and you owe. If you could file separately rather than jointly it would save me money.

      • No.

        Assuming that the 170K is taxable income:

        If you were two individual tax payers:
        16750 would be taxed at 10% (8375 each)
        51250 would be taxed at 15% (25,625 each)
        54400 would be taxed at 25% (6000 wife, 48400 husband)
        47600 would be taxed at 28% (husband)

        As a couple:
        16750 is taxed at 10%
        51250 is taxed at 15%
        *69300* taxed at 25%
        *32700* taxed at 28%

        The net effect is that the wife’s lower salary drags $14,900 from the 28% bracket down to the 25% bracket.

        You may owe at the end of the year for whatever reason, but the amount of refund / amount owed is very different that your total tax liability

  2. Interesting article. I just recently got married and I had heard of the marriage penalty, but wasn’t quite sure what it is. It’s good that we don’t quite meet that requirement, but I am definitely reaping the benefit of being able to get onto my wife’s health care plan.

  3. Nathan says:

    “The penalty only kicks when the two of you both earn over $68,000 each”

    Isn’t it when the two of you combined earn $68K?

  4. Of course, there’s also a marriage bonus if you and your spouse have very different incomes (or one spouse has no income at all).

    For example, if you’re single with an AGI of $65,000 and get married to someone with an income of $0, you not only get the larger standard deduction and extra exemption, but also pull a lot of your income from the 25% bracket down into the 15% bracket.

  5. Hope says:

    For my partner Chris and me to not be married we save a bundle. What your article doesn’t take into account are children. Married versus Head of Household filing (‘single parent’). We make $75K and $100K respectively. Head of Household makes a HUGE difference. We save no less than $5K a year when compared to the same return if we were married. Additionally we have two daycare aged children. Under tax laws if we were married we could only have $5000 pretax income for daycare spending for both. With each of us claiming one child consistently, we each have an FSA with our employers of $5000 for each child. This shaves $5000 off of our taxable income each. The first year we would have filed as a married couple we would have paid $7500 extra in taxes. That is a lot of money. We consistently save between $6-10K annually by being 2 single taxpayers with children and the larger earner claiming Head of Household. I will say it is not for the faint of heart. It requires a couple extra documents to establish a partnership recognized in emergencies or death. These only took a couple of minutes to add when we completed our wills. We enjoy the cash in our pockets for now……

    • Nam says:

      Hope — I am in your boat. My partner and I also choose to not get married; and both of us can claim Head of Household on our tax return, saving us thousands each year.

  6. Mark says:

    I was married last February and got hit by the penalty big time. Our combined income pushed us over the edge. Also, I lost control of the donations pile and my wife failed to get any receipts. In 2010, I plan to be more on top of my tax stance since it was really close this year. Keeping reciepts for donations, getting closer to the 401k max (I was within $2k, need to get closer), FSA’s (never went to the doctor, then last year had ACL surgery and no FSA). All those little things add up.

    • Jim says:

      You should be able to get receipts for your donations even if you’ve lost the originals, have you tried asking?

  7. freeby50 says:

    Most people will get a marriage tax benefit.

    If you have combined taxable income under $137k then you do better married. 90% of households have income less then that. So all 90% of those households generally see a marriage bonus or no difference.

    For households over $137k taxable income you can start to see a marriage penalty if their incomes are equal. But 1/3 of households over $137k only have one income earner so those households get a marriage bonus too. Another % of these households have high income disparities and pay less when married compared to single.

    I’m approximate that less than 5% of American couples pay a marriage penalty, and around 75% get a marriage bonus.

    • ecosta says:

      Saying that only a small percentage of Americans pay the marriage penalty doesn’t make it any less painful for those of us who do.

      • Jim says:

        And if the tax brackets were more equitable, that guess of 5% (I bet it’s much larger) would be 0%… where it should be.

        • freeby50 says:

          “that guess of 5% (I bet it’s much larger)”

          90% of households make less than $137k taxable income so they won’t be hit by the penalty. So at most 10% of households might hit the marriage penalty. At least 1/3 of those top 10% have only 1 income and don’t have a penalty. Many more of them have disparate incomes and also get a bonus. So that means at most 6.7% of married couples have a tax penalty. I feel the 5% guess is a high estimate.

          I’m married and we got a tax bonus when we got married. As do most people.

          More households have the ‘Non-married person penalty’ but nobody crys about that. THe way our tax code is designed theres no way for it to be ‘fair’ for everyone. You’re either going to get a marriage penalty, a marriage bonus, a single person penalty or a single person bonus. Of course you could say that the entire system is too complex and it should all be thrown out for one of the trendy ‘fair tax’ or flat tax deals, but good luck getting that done.

          • One caveat … even if only 5% of household are hit by the penalty, that doesn’t mean that only 5% of COUPLES would be. Couples do not make up the entirety of households. You have single people, widows, divorced, etc.

            And married people are more likely to be in the 137K+ range than a random household, simply because there is the potential for two incomes.

            So, if 10% of households fall in the 137K+ range, I suspect that 15%+ of couples fall into this range. Run this through the rest of your math and you’d end up with 10%.

            And this doesn’t take into account situations like Hope mentions, such as limitations on paying for day care with pre-tax funds (something that would affect a huge chunk of couples).

            I do think that the marriage bonus (or single penalty, if you wish) pretty much gets swept under the carpet, but there are definitely marriage penalties for a lot of people.

            About a year ago, I broke down some IRS stats regarding distribution of income levels (just using IRS data; nothing particularly fancy). One of the columns is dependents/return. You’ll see this rise at every income level up to 1M (where is tops out) – an indication that a higher percentage of people in each successive level are married.

            http://www.observingcasually.com/how-many-people-make-more-than-250000-per-year/

          • freeby50 says:

            “I suspect that 15%+ of couples fall into this range. Run this through the rest of your math and you’d end up with 10%.”

            Good catch Kosmo. I agree, I should have looked at just married couples.

            Its probably 10-15% of couples that have a marriage penalty.

          • NateUVM says:

            A true “flat” tax is EXTRAORDINARILY regressive and should never be considered.

            Simplify the tax code? Sure… But be careful not to make it worse with a flat tax.

  8. Myra says:

    There are other marriage penalties built in, other than the marriage brackets. For example, the Roth IRA salary phase out starts at $105,000 for single filers, $166,000 for married filing jointly (2009 numbers).

  9. Dirac says:

    I understand that some people rationalize this by noting that a married couple has half the expenses (what about roommates?). The thing that is overlooked is that married couples also use less community resources by living together.

    In the end, it is pretty crappy the way this is done. Why it is not just doubled…I don’t know. In the world of two income households, this does not make sense anymore.

  10. I’m about to get a divorce (we don’t have kids) so it’s going to be a little different tax wise, we’ll see. Hopefully I can post back my experience after going through this. Thank you for this great tax info. The comments are just as informative as the post.

  11. jsbrendog says:

    there are many other reasons not to get married 0:-)

  12. Aaron N. says:

    Oh great, I just got married… Totally worth it though.

  13. Izalot says:

    I don’t understand the marriage tax penalty. Wouldn’t filing separate balance out those with special salary considerations?

    • Scott says:

      In my experience from filing taxes for my wife and I over the past two years, filing separately only makes sense if you make nearly the same salary. If your salaries differ, then usually it’s better to file jointly because the lower earner’s salary “brings down” the higher earner’s salary. At any rate, fill our your taxes both ways and see the difference. For us MFJ saved us something like $8k.

      • Shirley says:

        Software from TaxACT offers to do just that, fill out and compare the two.

      • Jessica says:

        True. We both make upwards of $140k each and MFJ we would owe a total of $1k, MFS I owe $1k and he gets back $4k for a net of $3k back. That’s a four thousand dollar swing.

        Marriage penalty is definitely hitting us. I consider the extra taxes we pay from being high income married people to be the equivalent of charitable contributions. No sense in trying to justify it any other way.

    • Soccer9040 says:

      Married filing separately closes some tax advantages for you if you have a complex tax situation. But I hope if you had a complex situation you would not be doing your own taxes.

  14. eric says:

    lol don’t get married! :P jk. But this is something to keep in mind

  15. Eric says:

    Looking at the tax tables, MFS and MFJ tax rates are basically the same thing. MFS is exactly half of MFJ rates. I’m not sure where the savings comes from if you choose to file MFS.

    However, if you do not get married and both file single, I can definitely see the savings (if both people have similar income).

    • There are phase outs of deductions (and credits) at certain income levels. With MFS, you may be able to take full advantage (if the deduction properly belongs to the lower earner), with MFJ you might not.

      Then you have floors (such as the 7.5% if AGI for medical expenses – you can only deduct expenses in excess of 7.5%). If you have many deductions that are subject to floors (and if, in each case, the vast majority belongs to one spouse or the other), you can end up with more itemized deductions.

  16. HuBu says:

    what is MFS and MFJ?

  17. Mike says:

    Of course there are also other things to consider. With 50% divorce rates, you can get really slammed financially if you make the wrong choice with your partner. So always get a prenup to cover yourself.

  18. Anonymous says:

    I am looking forward to marrying my sweety a 66 year old retiree who makes approx $684/Mo.
    I was taxed at 72k for 2009.
    Q: will his social security income get reduced?
    Q: what would be my most beneficial move for filing 2010 MFJ or MFS?

  19. Jocelyn says:

    Just an observation here, but the Social Security survivor benefits really aren’t as great as I thought they were. My grandfather passed away last month. He was 82 and on SS. He and my grandma, age 70, were married for over 50 years. Because she still works as a special education teacher, she was awarded a ONE TIME Social Security death benefit of $255. She doesn’t want to retire yet because she loves her job, but I really think that it just isn’t fair. :(

  20. Chris says:

    The Marriage Tax is BS. I don’t own a home (don’t want to). Do not have children (don’t want any) and my wife and I are doing well for ourselves. But because we do not own a home or want kids we take a huge hit!

    Honestly I don’t see how this is remotely fair play? Why should people that have a home and kids get more and more back while I just sit here and pay more and more in? Yes, it is right to get back based on the fact that you have dependents. But for me to cover that money for you based on the fact that I do not have them?

    Filing jointly kills us. If filed (single) I would get back close to 10K and she would be looking at 2K. Instead we are looking at a 1K return. THAT IS AN 11K LOSE! How in the word is this remotely legal or right?

    If we file married yet seperate it is even worse!

  21. Matt says:

    Maybe most commenters here are concerned with practical considerations, while I’m concerned with social implications, but I’m surprised no one has mentioned the reason behind this so-called ‘marriage penalty.’ The name itself is misleading. It was not designed to punish people who get married; rather, it was designed to punish women in the workforce. For the most part, getting married has always had attendant tax breaks because from the state’s point of view, they enjoy the usual stability of marriage. Penalties like this came about to encourage women to leave the workforce and allow the re-entry of male war veterans following World War II. Note that the policy doesn’t punish marriage, it punishes the second income earner, which, historically speaking, is usually the female partner.

    Not that I intend to lecture anyone here, as I’m sure bargaineering.com is not the place people turn to for social activism. However, it seems like this part of the ‘marriage penalty’ has been completely overlooked due to lack of knowledge, not just interest. We have no hope of correcting ridiculously sexist laws and statutes if we’re not even aware of them.

    • govenar says:

      Interesting theory… is that intention documented somewhere? My guess is that the reason behind it is more related to the number of votes or amount of money politicians thought they could get.

  22. PapaGeek says:

    You are young, so you are blind to the real marriage penalty. Pre-retirement the penalty doesn’t start until a couple has a combined income of $137,300. At that point a married couple and a pair of singles are all paying taxes at the 25% level. From $137,300 to $164,800 the married couple’s penalty kicks in at 28% vs. 25% which is only 3%. Their total penalty at $164,800 amount to only $825 in additional taxes. It is not until the marriage couple has a combined income of $209,250 that the next increase occurs from 28% to 33%. Boo Hoo! I feel bad for a couple making over $200,000 having to pay a little more.

    Now, if you can drop your bias toward youth, let’s look at the real problem. The taxability of our social security benefits is based on our normal taxable income plus one half of the social security benefit. For a single person, if that amount is over $25,000, then 50% of the amount over $25,000 becomes the amount of social security that is taxed. if the basis goes over $34,000, then 85% is taxed until 85% of the total benefit becomes taxable. For example: a person get a $20,000 benefit check and takes another $25,000 out of their IRA. $25,000 plus half of $20,000 is $35,000. The first $9,000 of this amount, up to $34,000 means that 50% of their benefit ($4,500) is taxable, and the other $1,000 over $34,000 means that 85% of their benefit ($850) is taxable. Their gross income is $25,000 + $4,500 + $850 or $30,350.

    The break points for a married couple are $32,000 and $44,000! Not $50,000 and $68,000! Doubling the single persons numbers, their combined benefit is $40,000 and their combined IRA withdraw in $50,000. Their basis is $70,000. Everything is double so far! The first $12,000 over $32,000 means that 50% of their benefit ($6,000) is taxable, and the other $26,000 means that 85% of their benefit ($22,100) is taxable. Their gross income is $50,000 + $12,000 + $22,100 or $84,100. Double the single person’s gross income is $60,700. They are going to pay income tax on an additional $23,400 of gross income. At the 25% bracket, that is an additional $5,850 dollars in tax!

    Hey!!! Lucky them!!! They have hit the max of 85% of their benefit, so only $34,000 can be taxed, not $34,100. My numbers are wrong! That last $100 wasn’t taxed at 25% so their maximum marriage penalty is only $5,825 when their combined gross income is $90,000 ($40,000 benefit plus $50,000 IRA). Compare that to the $825 penalty they had prior to retirement at the $209,250 income level.

  23. PapaGeek says:

    Oops, I have to apologize for ranting too loudly. I checked my numbers on Intuit TaxCaster and everyone remains in the 15% tax bracket. A married couple with $40,000 SS benefit and $50,000 from an IRA pays $7,749 in taxes. A single person with $20,000 SS benefit and $25,000 from an IRA pays $2,526. The difference between two single people and a married couple is only $2,697, but that is still a lot higher and a lot sooner than the pre-retirement numbers.

  24. reasonable says:

    There is no estate tax benefits to getting married unless one spouse has a net worth in excess of 3.5 million. AS long as each spouse has a net worth less than 3.5 million and each spouse makes over 67000/yr, about 20% of income couples in metro NY and California, you should not get married.
    Speaker Pelosi and President Barak Obama are fervent supporter of the marriage tax penalty and is planning on increasing the penalty on more married couples in 2011.

  25. Stephanie says:

    I wonder how many people decide not to get married strictly based on tax codes. Or for that matter, how many people DO get married.


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