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Marriage Tax Penalty | How Does It Work?

Why is there a marriage tax penalty? To make the best decisions about how to avoid this or at least how to manage your finances more effectively, it pays to understand what marriage tax penalty is. It is also important to know how it works. You may choose to avoid marriage tax penalty by filing separately, but it is often not the answer for a number of reasons. Today, we’ll consider these issues and more.

Marriage Tax Penalty | What You Need to Know


The Marriage Tax Penalty: How Does It Work?

 The Marriage Tax Penalty: How Does It Work? | Marriage Tax Penalty | How Does It Work?
If you’re wondering “Why is there a marriage tax penalty?” you’re not alone. The marriage tax penalty is not an official policy, rather, it is a series of outcomes resulting from filing together. When you file together, the IRS calculates your income, tax brackets, and deductions differently. The result may be a penalty or a marriage bonus. Again, these are not official terms. They are results.

For example, when you both work and make the same amount of income and file together, you tend to suffer a penalty. That’s because your combined income puts you into a higher tax bracket than your income will be if you were both filing individually, even though the total is the same amount.

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Also, when a couple is unmarried, the breadwinner can claim head of household. That results in a larger standard deduction, which is lost when the couple marries. According to the Tax Foundation, this may result in a marriage penalty as high as 12 percent of the couple’s overall income.

But, when two couples with different income levels marry, a bonus usually results. That’s because the lower income pulls the total amount of taxable income down. The standard deduction has a greater relative effect, and the resulting tax bracket is lower. Bonuses can be as high as 20 percent of the couple’s income.

For the most part, people do not make their marriage decisions on the tax code. But if you were going to, these are important factors. There’s also a deeper lesson here. Our government and tax code are theoretically supposed to be neutral in our life choices, yet this proves the tax code is not neutral after all. It’s not possible to achieve both neutrality about marriage and progressive taxation. So for now, you have to work with the system we have. Here are some other considerations.

Married Filing Separately: Probably Not the Answer

If you are taking your taxes into consideration when wondering when/if to get married, there are a few other factors to keep in mind. For one thing, married couples who choose not to file together do not file individual returns. Instead, they file Married Filing Separately. Some people think the answer to the marriage penalty tax bill is to file under that status. Then you’re likelier to remain in those lower tax brackets.

But while you receive exactly half of the standard deduction ($6,350 compared to the $12,700 Married Filing Jointly couples receive), you miss out on a lot of credits and tax deductions. Married filing jointly couples receive deductions such as:

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  • Education benefits
  • The Earned Income Credit
  • The Child and Dependent Care Credit
  • The Adoption Credit

But, filing separately, you may not. You will also receive half the standardized deduction. The number of itemized deductions on the return also decreases. Plus, often you are otherwise limited in your ability to reduce your taxable income.

Downsides of Married Filing Jointly

Downsides of Married Filing Jointly | Marriage Tax Penalty | How Does It Work?
Married Filing Jointly does include a few risks. For instance, you are responsible for the other’s tax debt in the event they have not been honest on the return or with you. That doesn’t happen often, but it does occur. If your spouse is self-employed and hasn’t been careful about making their payments, you may lose any refund you’d otherwise have gotten.


Here’s a video by Wall Street Journal about marriage tax penalty:

At the end of the day, only you and your spouse know whether it makes sense to get married and file together. It’s best just to be aware of what it means for your finances to marry, and to file separately or jointly. If you aren’t sure, talk to a tax professional. They will be able to walk you through the numbers and help you make the best decision.

Does the article help you understand marriage tax penalty? Share your thoughts in the comments section below!

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