I divorced in 2012 and for the 2012 tax year, I was surprised by a federal tax refund and a state tax bill of similar amounts. I thought I would owe more to both. This led me to think about the vagaries of our tax system and, in particular, one that is spoken of often, the marriage tax penalty. Does it really exist?
First, we’ll use 2013 tax law, where it is true that the standard deduction for married couples ($12,200) is twice the standard deduction for single taxpayers and married couples filing separately ($6,100). Also, the 10% and 15% marginal tax brackets for married couples are twice the size of those for single taxpayers. Taken together, there would appear to be a desire to have no marriage tax penalty in the tax code. That is, however, where the story begins, rather than ends.
Let’s dig a little deeper, while using the table below created from the 2013 Tax Rate Schedule (the tax tables used are in Forbes ). We hold taxable incomes constant, below, in order to compare the differences in taxes. (We have purposely ignored all phase outs.)
| Taxable Income | Single | Married Filing Jointly | Single Tax/Married Tax |
| $50,000 | $8,428 | $6,607 | 1.28 |
| $100,000 | $21,293 | $16,857 | 1.26 |
| $200,000 | $50,130 | $43,465 | 1.15 |
| $390,000 | $112,830 | $105,013 | 1.07 |
| $450,000 | $135,964 | $125,846 | 1.08 |
The ratio of single tax/married tax in the fourth column indicates that the single tax is greater for single people and that the difference is not constant. This comes from a multitude of factors, including a different number of exemptions, changes in tax brackets, and cultural biases. For example, if you are single and have $450,000 in taxable income, you could marry someone with no income and no deductions, reducing your taxable income by the amount of the exemption ($3,900) to $446,100. This results in a tax owed of $124,481 for a tax savings of $11,483 ($135,964-$124,481). This is clearly a penalty for being single.
On the other hand, what if your spouse works? Let’s compare two, two-person households, with each person earning $100,000 in taxable income. If the household is made up of two single persons, they each pay $21,293 or their combined household taxes would be $42,586. If they were married with joint taxable incomes of $200,000, they would pay $43,465 in taxes, or $879 more than the two single persons household. Thus, a marriage tax penalty exists and it results from the fact that single taxpayers are in the 25% marginal tax bracket until taxable income reaches $87,850, while married couples leave the 25% marginal tax bracket and enter the 28% marginal tax bracket at a taxable income of $146,400 – which is less than twice $87,850 ($175,700). The married couple pays relatively more tax, given that more of their income is subject to the 28% marginal tax bracket.
How can both a single and a married tax penalty exist? The answer is relatively simple. The tax system began during a time when families typically had one earner. When two earners marry each other, they are pushed into higher tax brackets, as they both have income. This is not true when one earner makes substantially less than the other.
Take, for example, a couple with $200,000 in taxable income. Let’s let one member make $176,000, while the other spouse earns $24,000. If they were single, spouse one would pay $42,573 in federal taxes on the $176,000 in taxable income, while spouse two would pay $3,156 on the $24,000 in taxable income. Combined, their tax bill would be $45,729 or $3,143 more than if they were single with equal taxable incomes of $100,000 and $2,264 more than if they were married with total taxable income of $200,000. This highlights the fact that the tax benefit of being married is greater, the greater the disparity in the income of the two spouses. This difference rewards the traditional, outdated view of the household as consisting of a primary earner with, perhaps, a secondary lower-paid earner.
What is the bottom line? There really isn’t one. There exist both single and married penalties in the tax code. In fact, the tax code is full of implicit and explicit taxes and subsidies which have an effect on consumer behavior. Politicians made it that way to steer money toward beneficial (i.e., favorite) activities and away from those they perceive to not be beneficial. These create a complex tax code which confuses taxpayers and is part of the reason why there is such criticism of the tax system.
With respect to marriage, one does not base their decision to marry on the tax code. At least they shouldn’t. If one spouse earns substantially more than the other, it might pay a little to move the wedding forward to December, from February. On the other hand, if the couple earns substantially equal incomes, they might want to delay the wedding from December to January. The odds are pretty good that the choice of whether they can get the room in which to hold the wedding reception will weigh more heavily on the date decision, than their potential tax bill.
Regardless, marriage is not about money but, for financial success, it does take some money. If you want to marry, marry. Do not marry for, or not for, the tax benefits. And, don’t forget what Frank Burns, the M*A*S*H character said in 1975,”Marriage isn’t all that it’s cracked up to be. Let me tell you, honestly. Marriage is probably the chief cause of divorce.” Simply put, if you don’t want to get divorced, don’t get married. That’s like a failure once said, “I didn’t want to fail, so I didn’t try to succeed.”
