When 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 )