This guide covers how the marriage penalty works. 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.

Proponents have proposed eliminating or reducing the marriage penalty by doubling the tax brackets and standard deductions for joint filers. However, this remains an area of debate around tax policy and fairness

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 how the marriage penalty works.

What is The Marriage Penalty

The marriage penalty refers to a married couple paying more in federal income taxes than if they had remained single and filed individually. Here’s how the marriage penalty works: The income tax brackets for married couples filing jointly are not double those for single filers. This means that some portion of a married couple’s combined income gets taxed at a higher marginal rate than for two single individuals.

Standard Deduction of The Marriage Penalty

For 2023, the standard deduction for married filing jointly ($27,700) is less than double the standard deduction for single filers ($13,850 x 2 = $27,700). This reduces the tax benefit of getting married. Certain tax benefits, such as the child tax credit and student loan interest deduction, phase out at lower income levels for married couples versus single filers.

While income taxes have marriage penalties, Social Security payroll taxes do provide a “bonus” for married couples with disproportionately higher income levels.

The marriage penalty mostly impacts dual-income couples, each with a relatively high income. Single-earner married couples rarely face a penalty. Experts estimate that around 20% of married couples pay higher taxes yearly due to the marriage penalty. The penalty disproportionately affects lower—and middle-income married couples. Speak With Our Loan Officer for Mortgage Loans

The Marriage Penalty in Taxation

The “marriage penalty” in taxation refers to a situation where married couples pay more taxes than they would if they were each taxed separately as single individuals. This phenomenon occurs under a progressive tax system, like that of the United States, where tax rates increase with higher income levels. Here’s how it typically works:

Tax Brackets

The IRS uses different tax brackets for single filers, married couples filing jointly, and married couples filing separately. When two people with similar incomes marry and file jointly, their combined income may push them into a higher tax bracket, resulting in a higher tax rate applied to their combined income.

Standard Deduction

Married couples filing jointly get a standard deduction twice that of a single filer, but more is needed to offset the effect of the higher tax bracket.

Phase-out of Deductions and Credits

Some tax deductions and credits begin to phase out at higher income levels. When couples combine their incomes through marriage, they might reach these phase-out thresholds more quickly than they would as single filers, effectively reducing or eliminating their ability to claim certain tax benefits.

Alternative Minimum Tax (AMT)

Married couples are also more likely to be subject to the Alternative Minimum Tax, which is set at a higher threshold for single filers than for married couples filing jointly.

Impact on Couples

Over the years, tax laws have evolved, and some changes have been made to mitigate the marriage penalty, especially for lower and middle-income couples. For example, changes to the tax brackets and adjustments to the standard deduction have been aimed at reducing the marriage penalty.

• Dual-Income Couples: The marriage penalty is most pronounced for couples where both partners earn similar incomes, especially if those incomes are high.
• Single-Income Couples: Couples with one earner typically benefit from filing jointly, potentially paying less in taxes compared to if they were single.

Not all aspects of the tax code have been adjusted, and disparities still exist, particularly affecting higher-income households. It’s advisable for couples to assess both joint and separate filings to determine which method offers a lower tax liability, possibly consulting with a tax professional for personalized advice. Understanding the marriage penalty is crucial for married couples’ financial planning and tax preparation, ensuring they can make informed decisions about their filing status.

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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.

How The Marriage Penalty Depending on Income Works

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.

Tax Advice of The Marriage Penalty

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 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. Talk With Our Loan Officer for Mortgage Loans even in holidays

About The Author

Peter Arcuri is the editor in Chief and the national business development manager at Great Content Authority FORUM. Peter Arcuri is also a contributing associate editor and writer for Gustan Cho Associates. Peter is an accounting professional with advanced experience in individual taxation and California business tax laws by trade. Peter Arcuri 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.

Peter Arcuri’s passion is helping others and being armed with her extensive accounting experience and being an expert in real estate and finance, has committed in starting a career as a mortgage banker.

Peter will be partnering up with Gustan Cho Associates.  He will be a full-service mortgage banker specializing in FHA, VA, USDA, Conventional, FHA 203k, Reverse, Jumbo, Non-Conforming, and Commercial Loans. Peter Arcuri’s specialty will be originating mortgage loans with no lender overlays. Stay tuned for more informative blogs by Peter Arcur in the weeks to come.