Marriage can be a wonderful thing, but for some couples it can also be a costly institution come tax time.
In general, many couples enjoy what’s called a marriage bonus — they actually get a tax break for being married. But others are subject to a marriage penalty, meaning that they pay more in taxes than if they were each single.
Several relatively new tax provisions could result in some people paying higher marriage penalties this tax season, especially if they are among the nation's biggest earners, said Roberton Williams, Sol Price Fellow at the Tax Policy Center.
That’s because the provisions are mainly geared toward people who make a lot of money. One provision is aimed only at earnings over $200,000 for singles and $250,000 for couples, for example. Another subjects singles earning $400,000 or more, or couples earning $450,000 or more and filing jointly, to higher tax rates. When two high earners combine their high incomes, they are more likely to be hit with those higher thresholds.
Other quirks in the nation’s tax law also mean that some low-income couples end up paying a marriage penalty. That’s because major tax breaks that are designed to help low-income families phase out as incomes go up, meaning some couples lose valuable credits once they join households.
Some same-sex couples also may find that they are hit with a marriage penalty this year, because the federal government will now recognize those marriages for tax purposes. In the past, same-sex spouses had to grapple with a complex system in which state laws recognized their marriages but federal laws did not.
In general, Williams said, couples who have very different incomes — such as one working spouse and one stay-at-home spouse — are more likely to get a marriage bonus. Those who have very similar incomes, especially if they are relatively high, are more likely to pay a penalty.
“The closer and closer your incomes get together, the more likely (you are) to get into a situation where as single you pay less and as couples you (pay) more,” Williams said.
Ed McCaffery, a law professor at the University of Southern California, said the possibility of a tax penalty and other disincentives, such as benefits that also phase out as incomes go up, can make marriage seem like a bad short-term bet for very low-income Americans. He thinks that’s one reason there is an increasing wealth gap in who gets married, and who doesn’t.
Of course, there are plenty of longer term financial benefits to being married. For example, McCaffery noted that people who stay married for a long time can be eligible for Social Security survivor benefits, which can provide a huge financial lift in old age. Researchers also have found a slew of other ways in which marriage can help make couples wealthier than singles or cohabitating couples.
Curious if you and your spouse will be paying a marriage penalty or benefiting from a marriage bonus? Check out the Tax Policy Center’s marriage bonus and penalty tax calculator.