While we were home over the holidays, some friends — who have a “real” wedding planned for next summer — rushed to the courthouse to get their “legal” wedding on the books before the new year. The reasoning was that they could save money on taxes. If you get married on December 31st, you can file jointly as if you were married for the entire year.
That didn’t quite make sense to me. Why should two people suddenly be responsible for less taxes just because they are married? It’s an income tax, and their incomes remained the same, so it follows their tax liability should remain the same. I can understand a nominal discount due to the fact the IRS now has less paperwork to process — 1 return instead of 2 — but a significant discount would be illogical at best and discriminatory at worst. No wonder homosexuals are fighting for equal marriage rights; if a simple change to their filing status would save them thousands of dollars a year.
On the other hand, I’d always heard about a marriage tax penalty, where married couples end up paying more income tax filing jointly than they would have if they’d stayed single. Is the marriage tax penalty just a myth? When it comes to income tax, is getting married a sound financial decision?
To answer that question, I did some research and created an Excel spreadsheet. Yes, I’m a huge nerd.
- I created 85 hypothetical couples, with combined incomes ranging from $40,000 to $250,000.
- Using a random number generator, I assigned each couple a breakdown in earnings to determine how much money each partner contributed to the household total.
- Using the 2009 federal income tax tables, I calculated their income tax liability as single-filers and as a married couple filing jointly.
The results were surprising. In my small sample:
- 58% of couples received a marriage tax benefit. They owed less by getting married.
- The average benefit for these couples was $1665.
- 13% of couples experienced no change to their federal income tax liability after getting married.
- The remaining 29% of couples actually incurred a marriage tax penalty.
- The average penalty for these couples was $915.
- Overall, the couples received an average $690 tax benefit from marrying.
While the majority of couples experience no marriage tax penalty, it remains a very legitimate concern for nearly a third of all tax filers. And the figures don’t tell the whole story. It’s very interesting to see which couples are helped and hurt most by marrying.
This graph shows a couple’s marriage tax penalty or benefit based on their combined income. There’s not a bulletproof correlation, but in general, lower income couples are almost certain to see a tax benefit, while higher income couples may actually be hit with a marriage tax penalty.
This chart shows a much stronger relationship between the marriage tax penalty or benefit, and the couple’s “income-equality.” In general, the more lopsided the earnings relationship is, the greater the marriage tax benefit. Nearly all of the couples in which one partner made 85% or more of the income gained a substantial tax savings from filing jointly. One of my sample couples saved over $6000 in income tax after the wedding. How romantic.
However, couples with a more equal distribution of income are more likely to see the marriage tax penalty. In a few cases where both partners earned decent salaries, the marriage tax penalty was over $1200: an extra $100 a month in unnecessary and unjustified expense! I imagine very few young professionals take that into consideration when calculating their wedding costs. Dual income couples are unlikely to see any tax benefit from getting married, instead it will probably increase their taxes. I think you could make the argument that this is the government’s perverse way of encouraging “stay-at-home-mom-ism.”
Let’s revisit our friends and their 11th hour courthouse wedding. Both are employed as engineers, making good salaries. Based on the data, it’s very likely they just signed themselves up for a sizeable marriage tax penalty.
If taxes are essentially the price you pay for government services, does it make sense for a married couple to pay more (or less!) than an unmarried couple for presumably the same services?
It’s all pretty outrageous. Hopefully there will be some changes to the tax code to remove this unproductive and discriminatory loophole.
No related posts.
Related posts brought to you by Yet Another Related Posts Plugin.
You’ve got waaay too much time on your hands!
Very interesting. When my husband and I got married, we were both single parents “Head of Household” filing status. Getting married DOUBLED our taxes. It was a shock and one I thankfully thought of prior to 4th quarter of that year. We each had to add $1,000 per month to our withholding to break even for the tax year. Depressing.
As a former CPA, I agree with you that there has long been a need for tax equality. I hope it happens in our lifetime for ALL people.
So I think that your process may have lacked some of the options for taxpayers. There is much much more to consider when doing these types of calcualations. The gap would make a difference but there are also other things to consider. Prior to getting married my husband was able to claim head of household. Then he owned his house and had many deductions. Where as I was a single parent who just fell under the EIC limit. So he could file all the deductions and I would take the basic rates provided. So basically we lost almost $10,000 a year in taxes from getting married. That certainly seems like a penalty to me. This is a joke. Changes really need to happen.
Thanks for sharing this helpful info!
The Internal Revenue Code imposes many different kinds of penalties, ranging from civil fines to imprisonment for criminal tax evasion.
If you do not file your return and pay your tax by the due date, you may have to pay a penalty. You may also have to pay a penalty if you substantially understate your tax, understate a reportable transaction, file an erroneous claim for refund or credit, or file a frivolous tax submission. If you provide fraudulent information on your return, you may have to pay a civil fraud penalty. More Info.
[...] response to Marriage Tax Penalty: “We love beach weddings with a bamboo wedding arch and [...]
[...] folks. The rate of the proposed income tax varies from 1% – 7.5% depending on income and marital status. A single person earning $2 million would be hit with a $150,000 tax bill. Perhaps not a [...]