Marriage makes financial sense. If you have a significant other who believes that getting married is more of a financial liability than a benefit, that mindset is more common than you'd think. Many people, largely confused by the long-held belief that married couples pay more in taxes than those who are single—the marriage penalty—have held to that line of thinking as a reason to avoid tying the knot.
Not only is this largely untrue for many couples, but there are several reasons why marriage makes financial sense. First, let’s tackle taxes.
- Couples with unequal incomes generally get a marriage bonus.
- The new tax brackets may mean that couples filing jointly are in a lower bracket.
- If their partner has unused tax deductions, taxpayers who qualify may be able to take advantage of those deductions.
- If one spouse has no income, IRA contributions for the other spouse’s income can double, as the working partner can fund an account for each.
- Health insurance can be the greatest financial benefit: A couple whose employers both offer health insurance can choose the plan that's the best or cheapest for them.
- Married couples tend to get discounts on long-term care insurance, auto insurance, and homeowners insurance.
- Married couples often qualify for better credit and better terms on loans.
Penalties and Bonuses
Yes, America's progressive tax system can cut both ways for couples. Despite various attempts at reform, a marriage penalty still exists for some couples who earn about the same and are pushed into a higher tax bracket when their family income more or less doubles at marriage. This holds true for both high- and low-income couples.
By contrast, couples in which one partner earns all the income—or significantly more than the other—sometimes benefit from a marriage bonus because the higher earner's bracket drops after marriage and they end up paying less in taxes than if they'd filed separately as singles. In all, the marriage bonuses can amount to 21% of a couple’s income, while marriage penalties can amount to as much as 12%, according to the Tax Foundation.
Eliminating any and all marriage penalties and bonuses would require a significant rewrite of the tax code that would have far-reaching effects. Instead, lawmakers rely on marriage penalty workarounds.
The Tax Cuts and Jobs Act
The advent of the Tax Cuts and Jobs Act (TCJA), which was signed by President Donald Trump on Dec. 22, 2017, led to several changes to the tax code that were intended to lower corporate, individual, and estate taxes.
There has already been much discussion about how the tax code change makes only small reductions to income tax rates for most individual tax brackets while awarding significant tax reductions to corporations. Also, the cuts that benefit individuals will phase out in 2025 but will remain for corporations and other entities. That debate aside, there is much new information for married couples to consider.
Brackets, Phaseouts Aligned
First of all, the new tax brackets for married couples filing a joint return are now double the single bracket rate at the same income, except for those in the 35% and 37% brackets. This alignment limits a primary cause of the previous marriage penalty, as more married couples filing jointly find that their combined incomes now place them in a lower bracket.
Similarly, the child tax credit phaseout has been aligned beginning at $400,000 for couples, which is double the $200,000 phaseout for singles. Previously, the phaseout was $75,000 for singles and $110,000 for couples, so this change eliminated another potential marriage penalty for couples with kids.
The limit on the Child Tax Credit, previously $2,000, has been raised to $3,000 for children ages six through 17 and $3,600 for children under six. This change is part of the American Relief Act of 2021 and is effective only for the 2021 tax year, unless extended by an additional act of Congress. It is phased out for singles with incomes above $75,000 and couples with incomes above $150,000.
AMT Exemption and Phase Out Upped
The alternative minimum tax (AMT) is a tax regime that runs parallel to normal tax rules and applies to higher-income individuals and couples. Under the AMT, when taxes are calculated, the higher of the two figures is what is owed by the taxpayer, much to the ire of those lucky enough to trigger it. The AMT remains under the TCJA, but the new rule has increased both the AMT exemption and the income level at which the AMT phases out. The result is that the AMT will hit fewer high-income taxpayers.
Earned Income Tax Credit Penalties and Bonuses
The marriage penalty can be especially large for taxpayers who qualify for the earned-income tax credit (EIC) when one spouse’s income disqualifies the couple. That said, marriage can boost the EIC if a non-working parent files jointly with a worker with relatively low earnings.
A couple with $40,000 in combined income (split 50/50), for example, had a tax penalty of more than $2,439 in 2018, according to the Tax Policy Center. If this couple were not married, one parent could file as head of household with two children and the other parent would file as single. Under that structure, they would have combined standard deductions of $30,000, which is $6,000 more than the new, aligned $24,000 standard deduction for that income level when filing jointly as a married couple.
When filing separate returns, the head of the household could claim an EITC of $5,434 and a child tax credit of $2,825 (the other parent qualifies for neither credit). This means that the head of the household is due a refund of $8,059, while the other parent owes $800 for a total refund of $7,259. Had this couple filed jointly, they would have seen a far smaller EITC of $2,420 but a larger child tax credit of $4,000. In all, their refund would be $4,820, which is $2,439 less than if they had been unmarried and had filed separately.
Want to see for yourself? Get your financial documents out and use this tool to calculate whether a marriage would (or does) bring a penalty or bonus for you and your significant other.
As a result of the American Rescue Plan of 2021, the EITC originally capped at $543 for childless households, increases for those same households in 2021 to $1,502.
Is the opportunity to utilize someone's unused deductions a reason to marry them? Probably not. But if the owner of a successful business marries someone who is not taking advantage of their tax deductions, they may be able to reduce their tax burden via a write-off. This may also apply to steep medical expenses. Though this thinking may not be romantic, it is a solid tax-planning strategy.
The income ceiling for traditional and Roth IRA contributions is far higher for married couples in which one spouse has no income. Given that a spouse of an employed taxpayer may contribute to an IRA even if they don’t have a paid job, a couple fitting this description can sock away extra thousands of dollars for retirement (a full contribution for each partner) while achieving significant tax benefits.
And if you’re wondering whether such marriage incentives (and disincentives) have any effect on whether a couple will marry, they don’t. That said, they do have some influence over how much each spouse works.
Alimony No Longer Deductible; Now Taxable
While we’re talking about marriage, or rather the end of one, a big change under the TCJA is that taxpayers who pay alimony after Dec. 31, 2018, are no longer able to deduct their payments. Likewise, those who received their final divorce decree after Jan. 1, 2019, now have to claim alimony as ordinary income.
Health Insurance Benefits
Possibly the largest financial benefit of getting married is health insurance and the possibility of benefit-shopping. If one person has access to company-sponsored health insurance, they can add their spouse to the policy for an additional cost. If both have access to health insurance they can choose the best or cheapest plan.
Health insurance is a huge and steadily rising cost; marriage can lead to significant savings and/or an upgrade in coverage.
When couples enter a marriage and both have company-sponsored health insurance, they have to decide whether both should keep their own insurance or whether one spouse will join the other's plan. Generally, coverage can be changed in the 60 days following the marriage.
Keep in mind that couples who get their health insurance via an exchange must enroll together, although each individual can choose a different plan. Also, if each partner received a subsidy via the Affordable Care Act (ACA) when single, they likely would be penalized once they are married, as their combined salaries would probably push them over the cutoff threshold—$46,960 for singles; $67,640 combined.
As a result of the American Rescue Plan of 2021, all taxpayers with insurance bought on the ACA Marketplace are now eligible for this credit; previously, filers were ineligible if their income exceeded 400% of the federal poverty line.
Married couples also tend to get big discounts on long-term care (LTC) insurance, with some discounts at around 40%. This is because couples tend to care for each other at home for as long as possible, reducing the insurer's liability.
Auto and Home Insurance Benefits
By pooling insurance needs, insurance costs go down. Also, married couples are likely to get into fewer car accidents than single people. Multi-policy discounts and the lower price that comes with being married are just a few of the insurance benefits. Married couples pay approximately 4% to 10% less on premiums for car insurance. Other discounts include multi-car policies and bundling homeowners insurance with auto insurance. Some home insurers offer discounts just for being married; be sure to ask once you're hitched.
Better Loans for Married People
Two incomes are better than one. If you apply for a $150,000 home mortgage as a single adult, you may have only your own income for the bank to consider. As a married couple, your combined income likely would allow you to qualify for a larger loan with better terms, assuming that your credit scores are reasonable. Just remember that income isn't the only factor; lenders also examine credit histories, total and type of debt, as well as the borrower's debt-to-income ratio.
Speaking of Credit
Because everyone's credit score is attached to their Social Security number, getting married doesn't erase or start anew your or your spouse's credit history. What marriage does, however, is to create a history of joint debts and new accounts (when opened) for each spouse, which is also reflected in individual credit histories.
When couples jointly open an account, both credit scores will be factored into the approval process. If one partner has especially poor credit, both could be out of luck with lenders when opening a joint account, as it could result in a denial or higher rates and fees.
Of course, the opposite is also true; if one partner has better credit than the other, their history and habit of meeting payments on time can help the other partner's score. There's also the option of the partner with the better score opening accounts that both will use, though this may not work as well for mortgage applications when two incomes are helpful.
The upshot is that when someone with poor credit marries someone with good credit, the habits of the person with good credit tend to rub off on the other partner. The fact that many couples can leverage two incomes and combine, and reduce, many costs also helps improve their finances. So as a couple, you may be in a better position to maintain a solid financial footing or be on a good path toward getting there.
Most people don't get married for financial protection, but marriage provides that advantage for both spouses. For starters, if one of you goes through a bad patch professionally or medically, there's someone else to help and, probably, bring in some income.
It's not a stretch to say that protection in a divorce is hardly a reason to marry, but being married does provide protection if you split. It takes a court or a legal agreement to divide the assets of a married couple. Each party has some protection and a chance at equitable distribution of the marital assets. When two unmarried people live together, the legal procedure to divide assets isn't as clear. Courts have ruled in most states that divorce law doesn't apply to unmarried couples.
This means that contract law will apply in dividing up the assets. A non-spouse has no inherent right to any of the other person's assets, even if the property had been purchased using combined funds. The exception to this rule is the handful of states that allow common law marriage, but it's a myth that living together for a certain period gives even these partners all the rights of traditional marriage. Couples should review some of those rules to understand what applies to them and what doesn't.
Other Benefits of Marriage
Aside from tax considerations, better healthcare, and access to financial services and legal protection, couples should consider the often-overlooked benefits—and potential financial trade-offs—of getting hitched. We'll start with the best benefit of all: Married individuals tend to live longer than unmarried ones. While the reasons for that fact are complex, the numbers and benefits can't be ignored, especially when it comes to retirement planning.
Speaking of long-term planning, couples should also consider that getting married doesn't necessarily equal an excuse for a big party. With the average wedding costing $33,900 in 2019 and contributing little upside to positive marital outcomes, couples should weigh that cost against the idea of a down payment on a home.
Couples should also consider the fact that when more is spent on engagement rings (between $2,000 and $4,000, for example) there is a greater chance of divorce (1.3 times, in fact). Rather than listening to that sly salesperson, think of your sensible relative who would advise you that you can have a great wedding and a classy ring without breaking the bank.
The Bottom Line
If your partner is using finances as a reason not to marry you, their argument doesn't fare well against the facts. Getting married and staying married for the long-term brings the opportunity for more financial security, provided that each spouse practices good family financial rules. Don't spend more than you have and limit—or eliminate—the use of credit cards. Also, do your research on how to manage money as a couple, which is a little more complex than you might think. Don't skip having an honest talk about spending habits, money anxiety, and goals.