What Is the Marriage Penalty?
The term marriage penalty refers to the additional tax burden married taxpayers face compared to single filers. Even though marriage is largely a matter of the heart, there are often unavoidable federal and state tax implications for those who tie the knot. A married couple's income may be subject to a penalty of up to 12% if they have children and up to 4% if they don’t. This model assumes taxpayers use standard deductions and report only wage income.
- Some individuals experience a tax hit after they get married.
- Spouses with similar incomes are more likely to experience marriage penalties.
- A total of 15 states impose marriage penalties in addition to the federal government.
- The Tax Cuts and Jobs Act lessened the impact of the marriage penalty.
- Certain couples, such as those with disparate incomes, are more likely to experience marriage bonuses.
Understanding the Marriage Penalty
Being married comes with certain advantages. You don't have to eat dinner alone, you have someone to talk to when things get tough, and you have someone who'll grow old with you. But there are certain financial drawbacks that you should know about before you decide to tie the knot. One of these is the marriage penalty.
A marriage penalty is an additional liability that married couples face when it comes to paying their taxes over and above those faced by unmarried taxpayers. This penalty kicks in when married couples file their tax returns together. There are a variety of factors that may influence whether a couple will face a marriage penalty. These factors include individual and combined incomes, income disparity, and the number of children involved.
Marriage penalties aren’t merely a federal concern. According to the Tax Foundation, the following 15 states institute a marriage penalty:
- New Mexico
- New Jersey
- New York
- North Dakota
- Rhode Island
- South Carolina
These states issue a marriage penalty because the income tax brackets for married couples filing jointly are not twice as large as the brackets for single filers.
The Tax Cuts and Jobs Act (TCJA), which took effect for the 2018 tax year, made some changes that lessened the impact of the marriage penalty. For example, it equalized tax rates for joint returns with their single counterparts by doubling the income range of the single tax brackets for married couples filing jointly. This is true for all tax brackets except the highest, in which married filing jointly begins at less than double the single range.
Certain provisions in the TCJA may increase the marriage tax penalty. For example, both single and married taxpayers cannot claim more than $10,000 in itemized deductions for state and local taxes, including income and property taxes. Single filers who were previously itemizing deductions individually would also lose out substantially after marriage.
The Tax Policy Center’s Marriage Calculator can help individuals determine whether marriage penalties or marriage bonuses apply to them.
There are certain situations that may also trigger marriage penalties in addition to the factors listed above. The following are some of the most common.
Low Earners With Similar Incomes
Low earners often qualify for the earned income tax credit (EITC). Designed to encourage individuals to maintain their jobs, this initiative provides a credit of up to $6,728 for the 2021 tax year ($6,935 for 2022), depending on filing status and the number of children who may be claimed as dependents.
When marriage increases a low-earning partner’s household income, the EITC may diminish or disappear altogether. In such cases, a couple may have a lower after-tax income if they marry than if they remain unhitched.
In order to qualify for the EITC, the income limits for married taxpayers are not double those for single taxpayers. For example, the income limit for the 2022 tax year is $43,492 for a single taxpayer with one qualifying child but only $49,622 for married taxpayers with one qualifying child. These amounts increased in 2023, with the new income limits for taxpayers with one qualifying child at $46,560 for a single taxpayer and $53,120 for a married couple filing a joint return.
High Earners With Similar Incomes
Couples who jointly earn between $693,750 and $1,156,300 in the 2023 tax year ($647,850 and $1,079,800, respectively for 2022) will pay higher taxes if they marry. This is because the 37% federal tax bracket for married couples filing jointly is not twice as large as the tax bracket for unmarried individuals.
Although the 37% federal income tax rate kicks in for income over $578,125 in 2023 for singles ($539,900 in 2022), it kicks in for income over $693,750 ($647,850 in 2022) for married couples filing jointly. Simply put, a larger portion of a high-earning couple’s income falls into the 37% tax bracket if they marry, while more of it stays in the 35% tax bracket if they don’t.
If one spouse earns significantly more than the other, there may be tax benefits to be had as part of the higher earner's wages may be "absorbed" by the lower income spouse.
High Earners Hit With the Medicare Surtax
The Medicare surtax of 0.9% applies to wages, compensation, and self-employment income over $200,000 for single taxpayers and $250,000 for married taxpayers. A marriage penalty applies to couples whose earnings range from $250,000 to $400,000 because the tax threshold for married taxpayers is not double the threshold for singles.
High Earners Hit With the Net Investment Income (NII) Tax
A net investment income (NII) tax of 3.8% applies to passive income such as interest, dividends, capital gains, and rental income, after subtracting investment expenses such as interest, brokerage fees, and tax preparation fees.
Like the Medicare surtax, individuals must pay the NIIT if their modified adjusted gross income (MAGI) exceeds $200,000 and they're single, or if it exceeds $250,000 and they're married filing jointly. Here again, a marriage penalty applies to couples whose combined earnings range from $250,000 to $400,000. The difference is that this tax applies to net investment income, not earned income.
High Earners With Long-Term Capital Gains
Long-term capital gains on investments held longer than a year is another area where the 2023 tax year married filing jointly bracket ($553,850) is not double the single bracket ($492,300). Thus, high-earning taxpayers with capital gains will experience a marriage penalty compelling them to pay a higher capital gains tax rate of 20%, rather than 15%, when their combined income is over $553,850.
Similarly, the bracket for married couples filing jointly ($517,200) is not double the single bracket ($459,750) for long-term capital gains on investments for the 2022 tax year. This means that high-earning taxpayers with capital gains will experience a marriage penalty compelling them to pay a higher capital gains tax rate of 20% rather than 15% when their combined income is between more than $517,200.
Homeowners With Large Mortgages
Suppose an unmarried couple buys a home in 2021 with a $1,500,000 mortgage attached. In this scenario, each taxpayer may deduct the interest on $750,000 of that mortgage debt. But if a married couple bought the same house, with the same mortgage terms, they may deduct the interest only on $750,000 of the mortgage debt, as a unit.
In 2022, the standard deduction for married couples is $25,900, while the standard deduction for singles is $12,950. In 2023, these amounts increase to $27,700 for married couples and $13,850 for single filers. Because of the higher dollar amounts, there’s a higher barrier for married couples to overcome before a mortgage interest deduction pays off.
Marriage Penalty vs. the Marriage Bonus
Not every married couple has to pay a penalty. According to the Tax Foundation, spouses who file jointly can enjoy a 20% bonus on their combined marital income if they have children or a 7% bonus if they are childless. This bonus commonly kicks in when one partner’s income is substantially higher.
As a married couple filing jointly, the lower-earning spouse’s income doesn’t push the couple into a higher tax bracket. Rather, the couple benefits from the wider tax bracket applying to married couples. They may pay taxes at a lower rate as a result. Furthermore, the lower-earning spouse may receive contributions to a spousal IRA, courtesy of the higher-earning spouse.
Is It Better for Married Couples to File Jointly or Separately?
It is almost always more advantageous for married couples to file joint returns rather than file separate returns. By filing jointly, couples are more likely to receive lower tax rates, share in the same tax benefits, and qualify for tax benefits they would not otherwise be eligible to receive under a MFS status.
Can I File Single If I am Married?
No. If you were married at the end of the tax year in which a return is being prepared, the IRS does not allow you to file as a single individual.
Why Would a Couple File Separate Returns?
If a married couple has a very large discrepancy in income, it may be advantageous for the two individuals to file separate returns, especially if the lower earner has a very low income. In addition, the lower earner is most favorable when they are eligible to itemize their deductions and have deductions tied to a lower AGI (i.e. medical expenses in excess of 7.5%).
The Bottom Line
Few couples base their marriage decisions on the tax consequences that may result. But realistically, marriage does influence how much each spouse will work after they walk down the aisle. There is no denying that marriages can greatly affect tax implications. Couples should be mindful of the changes they may face and plan accordingly.