Unless they’re both tax accountants, newlyweds don’t always sit down to discuss the topic of taxes when they pick out rings, cakes and churches, but some have heard the phrase “marriage penalties” bandied about when tax topics arise. The truth is, a couple can actually receive a tax bonus when they tie the knot, according to the Tax Policy Center (TPC), a nonprofit proving that in most cases, newlyweds pay “less tax filing jointly than they would if they were single.”
The Marriage Penalty Myth
MSN Money’s Liz Weston writes that married couples received favorable tax treatment even before 2001 changes to the law were made, thus marriage penalties are more myth than reality. According to Weston, newlyweds get average savings of $1,300 per couple if they file jointly, while filing individually can result in a tax penalty of around $1,380. Weston’s statistics came from the Congressional Budget Office. According to the TPC, “Tax legislation since 2001 has substantially reduced marriage penalties and increased marriage bonuses. Legislation also raised the starting point for the earned income tax credit (EITC) phase-out range by $3,000 for married couples.”
About Disparate Incomes
Benefiting the most from marriage tax breaks are newlyweds with disparate incomes. “The wider the gap between the paychecks of husband and wife, the bigger the bonus,” claims Weston. This means that double wage earners in cases where both newlyweds hold high-paying jobs stand a better chance of paying penalties than do those where there’s one primary breadwinner. Reports the PTC, “Couples in which one spouse earns all of the couple’s income…almost always receive a marriage bonus, because joint filing shifts the higher earner’s income into a lower tax bracket.” Newlyweds facing the biggest fiscal challenges are poor couples. Tax expert and University of California law professor Edward McCaffery concluded, “A husband and wife who each earned $10,000 could end up with a marriage penalty of more than $4,000.”
The Numbers Game
Today’s standard deduction for newlyweds is approximately twice that paid by individual taxpayers. In 2010, the 15 percent income tax bracket was expanded to double the amount singles can claim. The potential for a penalty arises when newlyweds reach the 25 percent tax bracket. Even the date of your wedding can earn a tax break; schedule a Christmas wedding and receive married tax break benefits for a full year. Conversely, newlyweds are also responsible for each other’s misdeeds. From the moment you marry, bride and groom assume responsibility for “any federal income tax underpayments and penalties caused by your new spouse’s unintentional tax errors or omissions or deliberate tax misdeeds,” the Policy Tax Center adds.
More Than Tax Deductions
Smart Money.com points out perks newlyweds receive the moment they say, “I do” that skirt formal tax deductions but deliver tax benefits. Tax-deductible workplace health and pension benefits are immediately available to spouses. Social Security benefits can be awarded to a survivor based on the highest income earner. Insurance rates are lower for married people and couples enjoy both automatic inheritance rights and preferential estate-tax treatment. “You can leave an unlimited amount [of money] to a spouse without generating a penny of estate tax,” and receive special capital gains tax treatment for some marital property assets, reports Smart Money.com. Future news for newlyweds does not fare well for the federal government. According to the TPC: extending marriage penalty reductions through 2017 would cost more than $130 billion in tax revenue, a result of raising marriage bonuses.