Marriage Penalty

What is the Marriage Penalty?

Marriage penalty refers to the taxation penalty that can occur due to filing taxes jointly as married couple. This results due to tax brackets that do not scale at a sensible rate.

How does this happen?

In the wiki, there is a table that shows the effective tax brackets per individual when filing jointly. It is clear that these tax brackets grow much quicker than filing separately.

As a result, filing jointly will penalize two high income earners, while giving advantage to couples where there is a large income disparity.

Beneficial Scenario

Let’s say one person makes $50k and the other makes $30k.

• $50k is $14k taxed at 25% tax bracket
• $30k is completely in 15% tax bracket

By filing jointly, the combine income is $80k, which is $8k in the 25% bracket. This results in a reduced tax liability of $6k. In this situation, it is advantageous to file jointly.

When one spouse (or both) is low income, then there is usually an advantage to filing jointly. This is because at low income, the joint income brackets are equal to twice the single filer tax bracket.

Disadvantageous Scenario

Let’s say both persons makes $100k.

• $100k is $14k taxed at 28% tax bracket
• Filing separately is a total $28k in 28% tax bracket

When filed jointly with $200k, this is $54k in the 28% tax bracket. This means there is an extra $26k tax liability in the 28% tax bracket.

It is not advantageous to file jointly in this situation.

Why is this a thing? It sounds silly

There is history to all this nonsense. The government wanted to encourage marriage. So they introduced filing jointly and gave tax perks. Single filers felt they were being penalized and complained. So the single filing tax brackets changed. Now joint filers were not seeing value and some even avoided getting married. This is bad because somebody decided that separation of church and state was just a suggestion. So they introduce tax breaks to patch the situation. Now we’re all in the cluster-fuck. Such are taxes.

Why file jointly

• A low income spouse can “bear” tax burden of high income spouse
• Take advantage of tax credits that are only available to joint filers
• A high-income spouse can “use” the deductions that a low-income spouse incurs but is unable to use effectively.