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.