The Marriage Penalty

The Marriage Penalty Image

Tax laws are written to tax higher incomes at rising rates with fewer exemptions. Because of this, married couples filing jointly may end up with a higher joint federal income tax liability compared to what they would incur collectively if they remained single and filed as single individuals. This penalty exists if both spouses have similar taxable incomes. This penalty can sometimes be hard to predict, because it falls under the provisions of tax law, rather than a statutory item in the tax code.


More and more people have been learning of this penalty the hard way, as more and more women are joining the workforce and sharing the financial burden of the household with their husbands. In the past, it has been argued that the removal of the penalty is imperative to the success of the American family because it harms the institution of marriage and the concept of family.


Until the end of 2017, when a couple married and filed jointly, and their incomes were approximately the same, the marriage penalty would kick in simply because the couple would be in a higher tax bracket than the single individuals. If only one of the two individuals were earning income, or if the two incomes were disparate, there would be no marriage penalty. In some cases, there would be a kind of “marriage bonus.” A married couple filing jointly would fall into a penalty situation beginning with the 28% tax bracket, which began at $153,100 and ended at $233,350; for singles, the 28% tax bracket began at $100,000 and ended at $191,650. Note that the threshold for couples is not double the threshold amount for singles. The 35% bracket ends at $600,000 for married couples, however, whereas singles do not move into the 37% bracket until they earn $500,000.


The penalty can be even more significant in cases where some of these earnings are investments. Using the above example, suppose a married couple individually receive $40,000 as net investment income in addition to their $150,000 in earned income. As singles, neither taxpayer owes the NIIT (Net Investment Income Tax) since each is still below the $200,000 threshold. As a married couple, however, they will owe an additional $3,040.


Today, with women being represented more and more equally in the workplace, navigating this penalty is becoming an obstacle for more and more couples. As such, it is very important to have as much knowledge of the tax code, so you don’t cheat yourself out of your own well-deserved money. An experienced CPA is invaluable in those uncertain times.


Marlies Y. Hendricks, a U.S. Certified Public Accountant and a Canadian Chartered Professional Accountant who has over 20 years of public and corporate field experience. She is a member of the New York State Society of CPAs and the New York State Education Department - Office of the Professions, licensed as a CPA in NY, NC and IL states with offices in NY, NC and Toronto, Canada.


The above information is of a general nature only and should not be relied upon for specific situations.  We do not endorse the accuracy of the charts on the websites above.  Click here for additional tax accounting services information. 

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