The marriage penalty
Filing as a couple could reduce your overall tax obligation—or it could raise it. This video shows you the basics of the marriage penalty and how filing together could make a big difference on your liability.
To understand what people are talking about when they talk about a marriage penalty, let’s actually calculate the taxes for a bunch of different couples. So we’re going to calculate it as a married couple. And then also figure out what the taxes they would have to pay if they never got married and they filed as individuals.
So first I have Couple A, they each make $100,000. So if you just had an individual who makes $100,000, let’s think about how much they’d pay in taxes and then we can double it because they have two of them making $100,000.
So from $0 to $8,925, they’re going to pay 10%—round that to $893. On the next increment up to $36,250, they’re going to pay $4,099. On the increment from $36,240 to $87,850, they’re going to pay 25%, or $12,900. And then they’re going to pay 28% on the increment above $87,850 and below $100,000. So $100,000 minus $87,850 gets us to $21,294. Now this is just one person making $100,000.
But now let’s combine it. Let’s see what their combine taxes would have been if they just never got married. So [$21,294] times two gets us to $42,588.
Now let’s calculate it if they actually got married and they filed jointly as a married couple. And once they get married, they actually no longer have the option of filing as an individual. They now would either have to do married filing jointly, or do married filing separately, which does not give you this bracket right over here. So we really are comparing what happens when you are completely single, not married, to when you are married.
So when you’re married, we’re going to take their combined income of $200,000. The first $17,850 is at 10%, so that’s $1785. The next increment is $8,198. Plus the next increment, we still haven’t gotten to the $200,000, is $18,475. Plus 28% of the increment below $200,000 and above $146,400. So $200,000 minus $146,400 gets us to $43,466.
So notice, by getting married they now have to use this schedule because they’re going to file jointly. And they pay more in taxes. So this right here is what people consider to be the marriage penalty. And just to emphasize, you might say “Hey, why don’t they just file as an individual?” Well this [individual] tax bracket is no longer available to them if they’re married.
If they don’t want to file jointly, they could do married filing separately, but you’re still going to get the same outcome right over here. So in this case for this couple, which they’re both making an equal amount at a fairly high income, you do have a marriage penalty. They are paying almost $1,000 more in taxes.
But let’s think about a few other scenarios. Let’s take Couple B into consideration.
So if we do them separately. Let’s first take the individual who is making $180,000. They’re going to pay $893 in that first bucket. Then, $4099 on the bucket after that. That takes us up to $36, 250. Then $12,900. Then they’re going to pay 28% on the increment above $87,850. So they make $180,000, this is who we’re talking about. So $180,000 minus $87,850 gets us to (and I use this all the way up because it gets us all the way to $183,200, so if this was $184,000 we’d have to think about the next bracket—but it’s not) so then we get our answer. So this [$43,694] is just for the person making $180,000.
So to that we’re going to add the taxes that the person making $20,000 has to pay. So they’re going to pay 10% on this first bracket right over here, so that’s $893. Then they’re going to pay 15% on the increment above $8,925. So they make $20,000. So $20,000 minus $8,925 gets us to their total taxes, if we rounded, $46,248.
Now if they file jointly – so this is the situation where they never get married and they both can file individual not married – then if you were to add up their taxes that would be $46,248.
Now, once they get married and they file jointly, their combined income is the same as Couple A. So they’re going to pay $43,466. They are going to pay the same thing right over here.
And notice now they actually got a marriage benefit. So this over here was actually a marriage benefit. And the reason why it came out as a marriage benefit is now you had a huge disparity in incomes right over here. Most of the income was coming from this individual right over here. And by getting married, now this individual could use the married schedule, which at least in the first few brackets, increases at half the rate of these over here. Notice, the bracket over here is $0 to $8,925. This is $0 to $17,850. So you have the brackets moving up not as fast. And this was most of the income and so you actually get a benefit by getting married.
Now I’ll leave it as an exercise to you what happens in Couple C. And Couple C, they both have the same income, but their income is lower than what you saw in Couple A.
And you notice, this bracket right over here, $17,850 is exactly double $8,925. $72,500 is exactly double $36,250. But then $146,400 is not double this right over here. And so this is where you start seeing – for a scenario like Couple A – where you start seeing the marriage penalty. Only for Couple A. Notice, there was a marriage benefit for Couple B where you start seeing the marriage penalty kick in.
What you’ll see for Couple C, because as a couple they fall into this there, that last increment still falls into this category right over here. It’s going to be neutral—whether they get married or not.
And I just want to emphasize, you might be saying, “Wait, why doesn’t anyone just married filing separately?” Which is an option. You can do married filing separately, but it is not this [the individual] tax bracket. These brackets right over here. Married filing separately has a very similar effect as married filing jointly. So in the case of Couple A, you would still have the marriage penalty.