Married Filing Jointly: Should You Change Your Filing Status?

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The United State income tax system has an unintended “feature” that affect married couples.

This feature causes the combined tax liability of a married couple to be lower or higher than their combined tax burden if they had not gotten married.

This unintended feature is called the marriage bonus or marriage penalty.

What are the Marriage Penalty and Marriage Bonus?

The penalty or bonus occurs is a change in a couple’s tax bill as the result of getting filing with the married filing jointly status.

The degree of change in the couple’s tax bill is dependent on three factors

  1. Their level of combined income
  2. How similar their incomes are
  3. How many children they have

To understand the basics of how a penalty or bonus may occur we are going to look at a couple of examples and only use the first two factors for our calculations.

Marriage Bonus

Let’s look at how a marriage bonus would happen.

This situation usually occurs when two individuals with different income levels marry. One individual has a larger income than the other.

The additional income from married filing jointly usually does not push the combined income into a higher tax bracket. In addition, the tax brackets for married couples are much wider and therefore much of their joint income falls into lower tax brackets for calculation.

The net result is a lower tax bill.

As an example let’s consider a couple with a combined income of $70,000. The income is unequal with one partner making 50,000 and one making 20,000.

Single

Taxable Income Tax Rate
$0—$9,275 10%
$9,276—$37,650 $927.50 plus 15% of the amount over $9,275
$37,651—$91,150 $5,183.75 plus 25% of the amount over $37,650
$91,151—$190,150 $18,558.75 plus 28% of the amount over $91,150
$190,151—$ 413,350 $46,278.75 plus 33% of the amount over $190,150
$413,351—$415,050 $119,934.75 plus 35% of the amount over $413,350
$415,051 or more $120,529.75 plus 39.6% of the amount over $415,050

 

Married

Taxable Income Tax Rate
$0—$18,550 10%
$18,551—$75,300 $1,855 plus 15% of the amount over $18,550
$75,301—$151,900 $10,367.50 plus 25% of the amount over $75,300
$151,901—$231,450 $29,517.50 plus 28% of the amount over $151,900
$231,451—$413,350 $51,791.50 plus 33% of the amount over $231,450
$413,351—$466,950 $111,818.50 plus 35% of the amount over $413,350
$466,951 or more $130,578.50 plus 39.6% of the amount over $466,950

 

Tax Bill Not Married: $13,271

Tax Bill Married: $9,572.35

 

Marriage Penalty

A marriage penalty usually occurs when individuals of similar incomes marry. This affects individuals who fall at both high and low income levels.

With high income couples the marriage penalty occurs because the tax brackets at the top of the income tax schedule are not as wide as the same brackets for single individuals.

For instance, the 28% tax bracket starts at 91,151 for single individuals and at 153,901 for married filing jointly. A high combined taxable income can easily push a couple in to a higher tax bracket resulting in a penalty.

For our marriage penalty example let’s consider a married couple who each make $150k a year for a combined married income of $300k.

Single

Taxable Income Tax Rate
$0—$9,275 10%
$9,276—$37,650 $927.50 plus 15% of the amount over $9,275
$37,651—$91,150 $5,183.75 plus 25% of the amount over $37,650
$91,151—$190,150 $18,558.75 plus 28% of the amount over $91,150
$190,151—$ 413,350 $46,278.75 plus 33% of the amount over $190,150
$413,351—$415,050 $119,934.75 plus 35% of the amount over $413,350
$415,051 or more $120,529.75 plus 39.6% of the amount over $415,050

 

Married

Taxable Income Tax Rate
$0—$18,550 10%
$18,551—$75,300 $1,855 plus 15% of the amount over $18,550
$75,301—$151,900 $10,367.50 plus 25% of the amount over $75,300
$151,901—$231,450 $29,517.50 plus 28% of the amount over $151,900
$231,451—$413,350 $51,791.50 plus 33% of the amount over $231,450
$413,351—$466,950 $111,818.50 plus 35% of the amount over $413,350
$466,951 or more $130,578.50 plus 39.6% of the amount over $466,950

 

Tax Bill Not Married: $82,528.92

Tax Bill Married: $120,340.5

For low-income individuals, the Earned Income Tax Credit (EITC) affects marriage penalties.

A couple’s combined income can push them into the phase-out range of the Earned Income Tax Credit.

This will then result in a reduction of the couple’s combined after-tax income.

Marriage Penalties and Bonuses Have Effects

A marriage bonus can be as much as twenty percent of a couples combined income and a penalty can range as high as 12 percent of their income.

These penalties and bonuses in the income tax system violate tax code neutrality affecting a couple’s decision to marry and how much a spouse may or may not work.

While it is possible to eliminate both penalties and bonuses, doing so would require a huge overhaul of the tax code that dramatically alters the way that income taxes are currently calculated.

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