What is the marriage penalty?

Up until recently, when a couple got married, there was a strong likelihood that it would result in a change to the couple’s tax liability. With marriage and a decision to file a joint tax return, instead of separate individual returns, comes a different set of tax brackets. It is commonly referred to as the marriage penalty when the joint tax filing brackets result in a greater tax liability than the individual brackets would have otherwise created.

Before the 2017 tax year, when two people became married and filed their taxes jointly (assuming both taxpayers worked and their incomes were somewhat similar) it would typically result in a larger tax bill. This was because the two taxpayers filing together had greater income and the tax brackets were not proportionate with individual brackets. This is what is known as the “marriage penalty”.

The Tax Cuts and Jobs Act that was signed into law in 2018 (more here), in most cases, eliminated this penalty. The legislature adjusted the tax brackets, in an attempt to eliminate the penalty for most taxpayers. However, some parts of the tax code could still cause higher wage-earning couples to pay more when they are filing jointly. This is particularly true if the incomes for both individuals are similar.

Now for very high wage earners there may still be a marriage penalty. Let’s use as an example, those whose incomes are between $300,000-499,999 annually. If these taxpayers file separately, they will find themselves in the 35 percent bracket. However, if they file as a married couple and together make over $600,000 (assuming each makes over $300,000) they will be taxed at the 37 percent rate, rather than 35.  

Also, please note, for married taxpayers who are eligible for the Earned Income Tax Credit (EITC), the income limits within the tax credit are not doubled for married couples. 

It is important to point out, a marriage penalty is not the only possible outcome. It is also possible for the tax filers to receive a marriage “bonus”. This is particularly true for couples whose salaries may very greatly.

For these and other reasons, the IRS does not require individuals to file a joint return because they marry. It’s important to weigh everything before you make a decision about how to file, either as a married couple or individuals to see which way saves you a little money.

When major life changes, such as marriage, change a person’s tax filing status, it’s important to check your withholding as early as possible and make adjustments to your W-4 form accordingly. The IRS has created a Withholding Calculator that could be a useful tool in such a situation. The Withholding Calculator can help you determine if any changes are necessary to help cover your tax liability.

You can find additional information on this topic here https://www.e-file.com/help/best-for-couples.php