Q&A: The Marriage Penalty

It's time for fun with math and taxes!

Q: What is the "marriage penalty" and why is it important?

Here's why...

A: The U.S. has a progressive income tax. Households with more income pay at a higher rate then households with less income. Sometimes when two individuals get married, their joint income pushes them into a higher marginal rate when they file jointly.

So if John makes $60,000 and is taxed as an individual at a rate of 25% he owes $15,000. If Susan also makes $60,000, she is also taxed as an individual at a rate of 25% she also owes $15,000 (maybe they met at work). Collectively, they pay $30,000 in taxes when they are unmarried and filing as individuals (but perhaps pooling their resources, such as if they were cohabitating). If John and Susan get married, their household income would be $120,000. If they were to file as a joint married couple, then their $120,000 would be taxed at a rate of 28% and they would collectively owe $33,600. In this example, this leads to a "marriage penalty" of $3,600. Obviously, the potential "marriage penalty" varies widely by couple.


Q: Does it work both ways? Is there ever a marriage bonus?

A: Yes. A "marriage bonus" can occur when married couples pay a lower tax rate then if the couple were unmarried and filing separately. It is important to keep in mind that there are different progressive tax rates depending upon how you file your taxes - single, joint married, married filing separately, head of household, or trusts.

For instance, if you are filing as a single, you can earn between $7,300 and $29,700 and be taxed at a rate of 15%. If you are filing as a joint married (please excuse my lousy grammar), you can earn between $14,600 and $59,400 and be taxed at the same rate of 15%. So if John makes $10,000 and files as an individual he is taxed at a rate of 15% and pays $1,500 in taxes. If Susan makes $100,000 and files as an individual she is taxed at a rate of 28% and pays $28,000 in taxes. Collectively, they pay $29,500 in taxes when they are unmarried and filing as individuals. If they married and filed jointly, their household income would be $110,000 and they would be taxed at the joint married rate of 25% and would pay $27,500.


Q: Is there a way to avoid the marriage penalty?

A: It depends. The marriage penalty occurs most often when two people of similar incomes are married. The marriage bonus occurs most often when two people of very different incomes (one high, one low) marry. This often happens when one spouse (usually the women) forgoes work to raise children. The family loses the income of an extra breadwinner, but gains a marriage bonus when they file taxes due to the more generous joint married tax brackets. But as more and more women enter and stay in the workforce, more couples are likely to be subject to the marriage penalty.

Taxes are much, much more complicated then presented in these examples. They include deductions, tax credits (child credits, the EITC - Earned Income Tax Credit), and lots and lots of loopholes. Again, it varies widely depending upon the particular circumstances of the couple.


Q: Does the marriage penalty discourage couples from getting married?

A: There is conflicting research on this. An recent article by the Urban Institute discusses it at length, and a simple Google search on "marriage penalty" will reveal a wealth of information on the subject.


Q: How many couples are effected by the marriage penalty?

A: The CBO (Congressional Budget Office) estimated that in 1996, between 14 and 23 million married taxpayers incurred penalties totaling between $8 billion and $40 billion. The same year, between 24 and 31 million other couples benefited from between $32 and $45 billion in bonuses.