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How Much the Marriage Tax Penalty Will Cost You

Your spouse's high income might be nice -- until it bumps you into a higher tax bracket.

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Figurines look at a US tax return.
Alamy
By Jim Wang

Marriage is a wonderful thing, right? It is ... unless you're talking taxes.

When talking about marriage and money, most experts talk about the tax advantages of getting married. However, these tax advantages are often only available to married partners with large disparities in income.

Sadly, spouses who earn similar amounts of money -- especially those who are considered high earners -- are often subject to a marriage tax penalty.

What Is the Marriage Tax Penalty?

When you marry, you have the option of filing your tax return jointly, or filing separate tax returns. The marriage penalty takes effect when the taxes you pay jointly exceed what you would have paid if each of you had remained single and filed as single filers.

The marriage penalty is the opposite of what many call the marriage bonus. In a marriage bonus situation, you pay less in taxes as a result of your married status. The marriage bonus is most likely seen in partnerships where one spouse earns significantly less than the other. Situations in which one spouse stays at home or has a part-time job rather than a full-time job are most likely to result in a marriage bonus.

If you take a look at the internal revenue service tax brackets, you'll notice that the brackets for married filing jointly isn't double that of single filers for every income range.

2014 Income Tax Brackets and Rates

Single Filers Married - Filing Jointly Married - Filing Separately
Rate Taxable Income Range Taxable Income Range Taxable Income Range
10% $0 to $9,075 $0 to $18,150 $0 to $9,075
15% $9,076 to $36,900 $18,151 to $73,800 $9,076 to $36,900
25% $36,901 to $89,350 $73,801 to $148,850 $36,901 to $74,425
28% $89,351 to $186,350 $148,851 to $226,850 $74,426 to $113,425
33% $186,351 to $405,100 $226,851 to $405,100 $113,426 to $202,550
35% $405,101 to $406,750 $405,101 to $457,600 $202,551 to $228,800
39.5% More than $406,750 More than $457,600 More than $228,800

For those with low incomes, the marriage penalty doesn't usually apply. For tax year 2014, the 15 percent tax bracket tops out at $36,900 in annual taxable income for single filers, while the upper limit is exactly twice that for married couples.

Things change in the 25 percent tax bracket though. For a single filer, this bracket ends at an income of $89,350. If you simply doubled that number to get the top amount for joint filers, you'd see $178,700. But, unfortunately, that's not how it works.

For 2014, the 25 percent tax bracket ends at $148,850 for married couples filing jointly. Thus, they find themselves penalized for their combined income.

If you make $50,000 in taxable income and your partner makes $15,000 working part time, you benefit from marriage. As a single person, your $50,000 income would put you in the 25 percent bracket while your partner paid in the 15 percent bracket. Marriage, though, brings you down to the 15 percent bracket, since your combined income of $65,000 is within ranges.

As your incomes climb, and as partners see more parity in their earnings, the marriage penalty becomes more pronounced. Take the top tax bracket: As a single person, your income has to be at least $406,750 to reach the 39.6 percent level. If you are married filing jointly, you end up in the highest tax bracket when your combined income reaches at least $457,600. That's a difference of $50,850.

If you and your partner each earn $300,000 a year, filing individually would put you each in the 33 percent bracket. File jointly, though, and now you're in the 39.5 percent bracket.

Other Penalties

Other penalties include phase outs for certain credits and deductions. Phase outs for personal exemptions and itemized deductions in 2014 begin at $250,000 adjusted gross income for singles and $300,000 for joint filers.

You can see how the marriage penalty can impact your ability to reduce taxable income.
Also, new taxes on investing and Medicare as a result of the Affordable Care Act impact married couples considered high earners, since the threshold is $200,000 for singles and $250,000 for joint filers.

So, if you and your partner both make $150,000, neither of you is subject to the new taxes as singles, but as joint filers you are subject to the new taxes (depending on how much of your income comes from wages versus investing).

The bottom line: As you prepare to tie the knot, it makes sense to consider the tax implications of your marriage. In some cases, you can benefit with the married filing separately status. Filing separately doesn't bring the brackets in line with single filers, though, and you have to figure out how to divide up your deductions.

Consult a tax professional to help you run the numbers to see whether or not filing separately would help you reduce your marriage tax penalty.

Jim Wang is an entrepreneur, who founded microblogger.com. For actionable advice on how to build your own business, join his free newsletter.


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