Because of the way taxes for single and married people are calculated, some married couples end up paying higher taxes than they would if they were single while others end up paying less in taxes than if they were single. When you come out behind, it's a marriage penalty -- but when you come out ahead, it's a marriage bonus
Marriage Penalty Calculators
Marriage penalty calculators work by having each of you enter information for your income and expenses as if both of you were single. They figure out how much tax you'd each pay separately and then combine your two sets of figures to come up with a simulated tax bill for a married couple so that you could see how it would work. They're frequently offered online by organizations that help you understand your taxes (see link in References).
Behind the Scenes
The marriage penalty comes from the fact that the IRS doesn't always treat a married couple like two single people. A married couple's standard deduction is exactly twice a single person's -- $12,200 instead of $6,100 for the 2013 tax year. The 15 percent tax bracket is the same as well. A single person pays 15 percent on taxable income up to $36,250; married couples get the 15 percent bracket for twice that amount of taxable income -- $72,500. However, a marriage penalty comes into play in the 25 percent bracket. While it extends to $87,850 of taxable income for a single person, it doesn't extend to $175,700 for a married couple. Instead, married couples start paying 28 percent tax on taxable incomes over $146,400, giving them a tax increase at taxable incomes of more than $73,200 each.
Winners and Losers
Taxpayers who fall in the middle generally don't experience a marriage penalty and may even experience a marriage bonus. Generally, if your household income is between $40,000 and roughly $200,000, marriage either will not raise your taxes or could lower them. It's also particularly kind to you if you have very unequal incomes. A single-earner married couple almost always comes out ahead, since that single earner benefits from wider tax brackets by including her spouse. For instance, if a single person made a taxable income of $50,000, she'd pay taxes in the 10, 15 and 25 percent bracket. As a married person, she's only subject to the 10 and 15 percent brackets, and a greater proportion of her income is subject to the lower tax. On the other hand, two people who have nearly equal income are more likely to lose, since being married frequently gives you narrower tax brackets than you'd have as singles. While this doesn't come into play with moderate incomes, if two married people each have $100,000 incomes, their $200,000 combined income would be taxed at a higher rate than two separate single people's incomes. This happens because the 28 percent bracket comes into play more quickly for a married couple than for two single people.
The Dependent Factor
When you have children, the marriage penalty gets even worse. If you were single, one of you could file as single and one of you could file as a head of household, which is a special filing status that sits in between being single and being married. For instance, in 2013, a single person and a head of household would have a combined standard deduction of $15,050, instead of the married couple's $12,200. The 15 percent bracket for an unmarried couple choosing both statuses would extend to $84,850, compared to the married couple's $72,500.
In Defense of Marriage
If you have different incomes, the higher-income spouse gets to use the unused extra room in lower brackets that the lower-earning spouse doesn't use. For instance, if a husband and wife make $80,000 and $30,000 and you allocate the tax brackets between them equally, the spouse that makes $30,000 will pay the same taxes she would if she was single. However, since there is a total of $72,500 of income subject to 10 or 15 percent taxes, the higher earning spouse will get to enjoy $42,500 of income at that lower rate before going into the 25 percent bracket. Married couples do get to transfer money and gifts between each other without worrying about any gift tax liability. Even if you have a very high income and really get socked with the marriage penalty, it really isn't t hat bad. Calculations from the Tax Foundation indicate that a married couple earning $350,000 each with a total taxable income of $687,800 pay a marriage penalty of $26,643. While that might seem like a lot of money, it's not even 4 percent of their total taxable income.
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