There is a problem in Washington that no one seems to be fixing. Federal income tax brackets for married couples are larger than for a single person to accommodate the two incomes, but not double. Therefore, two income households are pushed into a higher tax bracket more quickly than if they were to remain single. However, one income households benefit from marriage because their singular income gets the larger tax bracket intended for two incomes. This situation has disincentivized many secondary income earners from working and earning a salary. The tax bracket conundrum has also caused couples to forgo marriage altogether in order to not lose out when paying taxes.
The problem is being referred to as either a marriage penalty, or marriage bonus depending on whether or not the secondary income earner stays in the workforce after their nuptials. To better understand the issue, take the example of single woman earning $75,000 in 2015. Her marginal tax rate would be 25%. If she marries a partner earning $80,000 a year, then by virtue she becomes the secondary income earner. Due to her new marital status, her marginal tax rate increases to 28% in spite of the fact that neither her nor her spouse’s income increased.
Law makers have offered up various solutions to solve the tax penalty problem, but implementing change to the tax structure is not easy. It has been suggested to stop taxing individuals based on their marital status (even though married couples are treated as one economic unit in other contexts). Some have also suggested doubling the tax bracket for all married couples (which would maximize the marriage bonus for one-income households who do not need double tax brackets—this solution was put into place but only for lower income tax rates).
There seems to be one solution requiring minimal change that would eliminate the penalty, creating a fifth tax filing status for dual-income married couples, whose tax bracket is double those of a single filer. Current tax filing statuses are for single filers, married couples filing jointly, married couples filing separately, and head of households. By creating a fifth filing, married couples with two-income earners and double tax brackets would be treated as a single unit under tax code and there would be no marriage bonus or penalty for married couples not having two incomes.
To target the marriage penalty without creating a large marriage bonus, spouses may have to earn some percentage of each other in order to be eligible for double brackets. This would prevent one spouse from working a nominal job to trigger double brackets in order to accommodate their partner’s significant income.
In recent years, society has been overwhelmingly concerned with the record number of individuals not marrying and not participating in the workforce. The marriage penalty has been long ignored, but should be carefully examined as the tax obstacles it creates may be the root of these dwindling numbers.
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Partner at John F. Schutz, P.L.
Representing clients exclusively in family law cases for the past 24 years, Mr. Schutz is widely regarded as a marital and family law expert. He is Board Certified in marital and family law by The Florida Bar. As a Fellow of the American Academy of Matrimonial Lawyers (AAML), Mr. Schutz is committed to elevating the standards and improving the practice of family law.
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