The marriage penalty exists whenever the tax on a couple’s joint return is more than the combined taxes each spouse would pay if they weren’t married and if each filed his or her own single or head of household return. The tax is more on a joint return when the couple’s taxable income is pushed into a higher marginal tax bracket than would apply if the couple wasn’t married (so they pay at a higher rate on the same total income than they would pay if each were single). And that usually happens where both spouses work and have relatively equal incomes.
Although Congress has provided some relief from the marriage penalty in the tax rates—e.g., by expanding the joint filer’s 15% tax bracket to twice the single filer’s 15% bracket—those changes don’t address the marriage penalty effect under the rates for joint filer’s income taxed at rates above 15%.
For example, say that each of two taxpayers has taxable income of $90,000 in 2014 (and assume double that, or taxable income of $180,000, on a joint return):
If married, their joint return tax would be $37,647.00 If single, each would owe $18,375.75 a total of $36,751.50 --------- The marriage penalty is $895.50 =========
The marrieds pay $895 more because more of their income is taxed at a 28% rate, while only a small portion of the singles’ income is taxed at a rate of 28%.
In addition to the marriage penalty caused by the rate structure, other Code provisions also have the effect of penalizing married taxpayers. These penalties don’t apply to everyone, or in every year, but they still mean more tax when they do hit. Here’s
a list of some of the more common marriage penalties.
Lower trigger for reduction of itemized deductions: Under the overall limitation on itemized deductions, a married couple’s itemized deductions are reduced if their adjusted gross income (AGI) exceeds $305,050 (for 2014). If single, each could have AGI of $254,200 ($508,400 total) before the reduction in itemized deductions would begin to apply.
Lower threshold for personal exemption phaseout: The personal exemption phaseout applies when AGI exceeds $305,050 for a married couple (for 2014). If single, each could have AGI of $254,200 ($508,400 total) before the phaseout would kick in.
Lower capital loss deduction: A married couple can deduct capital losses up to $3,000 total. The same two persons, if single, could deduct a total of $6,000 ($3,000 each).
Reduced passive activity loss deduction for active rental real estate owner: A married couple who actively participate in renting out real property can deduct up to $25,000 of loss from the activity, if their modified adjusted gross income is $100,000 or less. If single, each would get an up to $25,000 deduction (up to $50,000 total) and each could earn $100,000 ($200,000 total).
On the other hand, tax can be somewhat lower—a marriage bonus—for some marrieds filing jointly than if they were single, where there is a wide discrepancy in their earnings. There is no universal rule.
If you would like to discuss your particular situation or any of the topics above in more detail, please contact our office.