The Marriage Tax Penalty: What Couples Should Know Before Tying the Knot

A common wedding checklist might include cake, flowers, and invitations, but what about increased income taxes? The marriage tax penalty is an unintended feature of the United States tax system that occurs when a married couple’s tax bill exceeds the amount they would have paid as single individuals. As the Tax Foundation notes, however, couples can also end up paying less in taxes after tying the knot. It’s important for couples considering marriage to determine both the positive and negative tax changes they might start seeing after their honeymoon.

Who Pays the Marriage Penalty?

Couples at both ends of the income spectrum who earn similar salaries are penalized the most under current tax codes. For lower earners, combining incomes often eliminates or reduces the Earned Income Tax Credit. As an example, for a single person with one child, the phaseout limit for a tax credit in 2015 is $39,131, but for married couples, the income limit is only about $5,000 higher. While this tax credit was passed as an incentive for people to work, the marriage tax penalty could end up discouraging married couples from earning more money.

For higher wage earners, the penalties can often be worse. The upper limit of the 25 percent tax bracket for individuals is $90,750. It would make sense for that limit to double for married couples, but instead, it stands at $151,200. Couples making similar salaries in this income range would find themselves penalized with higher income taxes.

Other Tax Penalties

Besides increased income tax, other penalties can impact married couples who earn higher salaries. Penalties on investments and an increased Medicare tax kick in when individuals make $200,000 or more, but the limit for couples is only $250,000. Personal exemptions are phased out beginning at $258,250 for singles and at $309,900 for joint filers, making it harder for couples to reduce their taxable income.

Another marriage tax penalty couples face is with Affordable Care Act health insurance premium tax credits. For example, an unmarried couple living in New York could earn $46,000 each, or $92,000 combined, and still qualify for health care subsidies. If they marry, the amount of income that qualifies drops to $62,000.

Additionally, when individuals who qualify for a health care subsidy marry someone on an employer-sponsored plan, that subsidy goes away, regardless of income amount or whether the spouse’s employer pays for family coverage. Even if their income taxes are not affected by marriage, health care could become an issue for some couples hoping to tie the knot.

Marriage Bonuses

Getting married isn’t all gloom and doom in the tax department, however. Many couples are able to take advantage of a marriage bonus after their nuptials. This bonus works especially well for couples with unequal incomes. A single person earning $100,000, for example, falls into the 28 percent income tax bracket, but if they marry someone earning $25,000, their combined income falls within the 25 percent bracket.

An Unequal Tax System

Marriage tax penalties and bonuses are impossible to avoid under the current U.S. tax code. In a fair system, taxes would remain the same regardless of whether couples choose to marry or remain legally single. A flat tax on consumption that eliminates income tax altogether would also end marriage tax penalties, but that type of major reform will take time. Until then, Americans may continue to be penalized or rewarded for walking down the aisle.

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