This Article On The Marriage Penalty Was UPDATED On October 13th, 2018
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
In this article, we will discuss and cover The Marriage Penalty And How It Works.
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, their total tax bill would be $7,388, which results in a tax penalty of $4,727.
The Marriage Penalty And How It Works Depending On Income
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 And 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
- This is 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 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
Arlene DiSessa is a loan officer at Gustan Cho Associates. Arlene is also a contributing associate editor and writer for Gustan Cho Associates. Arlene is an accounting professional with advanced experience in individual taxation and California business tax laws.
- Arlene 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
- Arlene DiSessa’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
- Arlene will be partnering up with Gustan Cho Associates
- She 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
- Arlene DiSessa’s specialty will be originating mortgage loans with no lender overlays
Stay tuned for more informative blogs by Arlene DiSessa in the weeks to come.
October 13, 2018 - 3 min read