What Is Marriage Penalty And How Does It Work?

This Article On The Marriage Penalty Was Written By Bob Vogel NMLS 1446953

He loves me, he loves me not, he loves me, he loves me not. 

  • Imagine what a wonderful world it would be if that was the only dilemma running through one’s head when deciding to tie the knot or not.
  • There are many things to consider when deciding to share the rest of your life with someone, such as where to live, how to share the finances, and dividing household chores. 
  • Who would has time to think about tax implications?
  • The so called marriage penalty has been discussed in the tax arena by many tax professionals and taxpayers alike. 
  • The marriage penalty comes in the way of higher taxes and lower deductions due to phase-outs caused by the combination of two wage earners.

Case Scenario Of The Marriage Penalty

Let’s look at a few examples:

  • Mary is a single taxpayer and she makes $20,000 per year.
  • She has 2 children under the age of 13 and has annual childcare expenses of $8,000.
  • Her refund would be $5,150.  Rob is also a single taxpayer and makes $80,000 per year. 
  • He also has 2 children under the age of 13 and has annual childcare expenses of $8,000, 
  • His tax would be $7,810.
  • If Mary and Rob were married, there total tax bill would be $7,388, which results in a tax penalty of $4,727.

Now let’s use the same scenario to see what happens when we change the income figures:

  • If Mary were to earn $80,000 per year the same as Bob, the  marriage penalty would be $5,618.
  • Let’s say that Mary and Ron both earn $120,000 each.  The marriage penalty jumps up to $9,168.
  • If Mary and Ron both earn $20,000 per year the marriage penalty is $7,506.
  • In looking at the above figures, it would be safe to presume that couples earning similar incomes get hit the hardest.

The Marriage Penalty: Tax Divorce

This marriage penalty has created a situation for married couples to ponder a tax divorce:

  • This scenario is never recommended. 
  • This practice would be highly discouraged from any ethical tax expert as any effort to willfully evade tax or deceive the IRS comes with hefty punishments and/or penalties. 
  • However, it would make sense that the marriage penalty would cause people to actually consider a tax divorce or avoid marriage altogether in an effort to avoid thousands of dollars in taxes. 
  • So the question to really ask is , “How can we preserve the institution of marriage?”
  • Simply put, we need solutions. Some would say the marriage penalty is a form of discrimination. 
  • It appears the Internal Revenue Code needs to be updated to address the marriage penalty because it is definitely not fair. 
  • Perhaps they could consider expanding the income levels for each tax bracket to match that of a single counterpart. 
  • Or increase the threshold for a married couples so they can enjoy the same benefit from the Earned Income Credit as their unmarried friends.
  • In all of these scenarios, the marriage penalty is significant enough to  create a pause when thinking about running down the aisle to say I do.

About The Author Of The Marriage Penalty

Bob Vogel NMLS 1446953 is a loan officer with The Gustan Cho Team and is a senior writer for Gustan Cho Associates and an accounting professional with advanced experience in individual taxation and California business tax laws.

  • Bob Vogel has extensive experience in setting up accounting and financial records for new business start-ups.
  • Experience includes 7 years of audit work, 20 years of income tax preparation, and 3 years in tax debt settlement and negotiation.
  • Bob Vogel’s passion is helping others and being armed with her extensive accounting experience and being an expert in real estate and finance, has committed herself in starting a career as a mortgage banker.
  • Bob Vogel will be partnering up with Gustan Cho Associates and will be a full service mortgage banker specializing in FHA Loans, VA Loans, USDA Loans, Conventional Loans, FHA 203k Loans, Reverse Mortgages, Jumbo Mortgages, Non-Conforming Loans, and Commercial Loans.
  • Bob Vogel’s specialty will be originating mortgage loans with no lender overlays.
  • If you have any mortgage lending questions and like to go over case scenarios, feel free to contact Bob Vogel at bob@gustancho.com.

Stay tuned for more informative blogs by Bob Vogel in the weeks to come.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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