DEFINITION of 'Marriage Penalty'

Marriage Penalty is the increased tax burden for married couples compared to when they were filing separate federal tax returns as singles. Progressive tax rate structures in the United States led to a situation where higher-income individuals and couples pay higher taxes than their lower-income counterparts. The marriage penalty has been at the center of many political debates and the United States government has taken steps to resolve the taxation discrepancy.

BREAKING DOWN 'Marriage Penalty'

Some married couples do pay more in taxes than comparable single filers, but some married couples also pay less in taxes under the same circumstances. It's all part of the patchwork quilt of laws and rules that make up the U.S. tax system, one of the most complicated in the world, which in 2017 weighed in at more than 74,00 pages.

Love And Taxes

According to the Tax Foundation, marriage bonuses typically occur when two individuals with disparate incomes marry, and marriage penalties occur when two individuals with equal incomes marry. The group contends that this holds for both high- and low-income couples.

"Marriage bonuses can be as high as 20 percent of a couple’s income, and marriage penalties can be as high as 12 percent of a couple’s income," the foundation stated. "While research shows that marriage penalties and bonuses do not have much effect on whether a couple will marry, they do impact how much each spouse works."

The marriage penalty exists for high-income couples because the income tax brackets for married couples at the top of the income tax schedule are not twice as wide as the same brackets for single individuals. So, the 33% tax bracket for singles starts at $189,300 of taxable income but it starts at $230,450 of taxable income for married couples filing jointly. 

The foundation reckons that a combined $300,000 income of an unmarried couple with equal income filing separate returns would have generated a total tax bill of $83,232 ($64,374 from the individual income tax and an additional $18,858 from the payroll tax). If they were to get married, they would be hit by a marriage penalty of $3,806.

Changes to the tax code set to take effect for the 2018 tax year retain the penalty for higher-income earners making over $600,000, but eliminate it for lower-income people, according to a Bloomberg analysis. On the other hand, the new law caps state and local tax deductions at $10,000 but it is the same for married couples filing jointly and single filers, giving an advantage to individual taxpayers. A marriage penalty, some would argue.

  1. Married Filing Separately

    Married filing separately is a taxg status for married couples ...
  2. IRS Publication 555

    A document published by the Internal Revenue Service (IRS) that ...
  3. Taxpayer

    A taxpayer is an individual or business entity that is obligated ...
  4. Tax Bracket

    A Tax Bracket is the rate at which an individual is taxed. Tax ...
  5. Bush Tax Cuts

    The Bush tax cuts are a series of temporary income tax relief ...
  6. Exempt Income

    Exempt Income refers to earnings that are protected from federal ...
Related Articles
  1. Personal Finance

    Marriage Vs. Common Law: What It Means Financially

    The number of unmarried couples is on the rise, but your relationship may or may not be given the same benefits as married couples.
  2. Taxes

    Why Same Sex Couples Pay More Taxes

    Without the option to have a legally recognized marriage, gay and lesbian couples face higher taxes.
  3. Personal Finance

    5 Things to Consider Before Later-in-Life Marriage

    Marrying later in life has become the norm, but do you know what to consider before saying "I do"? Here are 5 (financial) things to consider before later-in-life marriage.
  4. Personal Finance

    6 Ways Marriage Can Improve Your Finances

    Understanding your partner's situation is an essential step before combining your finances - but the perks can be plentiful.
  5. Personal Finance

    The Financial Pros and Cons of Getting Married

    Considering the financial benefits and challenges of getting married can help you make the decision that is best for you and your significant other.
  6. Taxes

    Trump’s Upper-Middle-Class Tax Increase

    While the rich save on taxes, some upper-middle-class couples and singles may find themselves in a higher tax bracket under President-Elect Trump’s plan.
  7. Financial Advisor

    Tax Time is Coming; Don't Be Caught Off Guard

    It's time to think about tax returns again. The good news is that the regulations in 2016 have not changed dramatically from last year.
  8. Personal Finance

    Top 10 Financial Concerns When Getting Married

    Couples with marriage plans should consider this checklist of 10 financial concerns.
  9. Managing Wealth

    What to Do Before Marrying: Student Debt

    If you and/or your future spouse have student debt, you need to discuss how you'll repay it once you're married.
  10. Taxes

    What's a Marginal Tax Rate?

    The marginal tax rate is based on a progressive tax system, where tax rates for an individual will increase as income rises. This method of taxation aims to fairly tax individuals based upon ...
  1. What's the difference between a tax rate and a tax bracket?

    These two terms are often incorrectly used interchangeably. Find out the difference between your tax rate and your tax bracket. ... Read Answer >>
  2. What is the difference between a single and a married withholding tax?

    Find out how the withholding tax differs for married and single individuals, including examples of how the income tax rate ... Read Answer >>
Trading Center