What is the purpose of what’s commonly known as the “Marriage Penalty” tax?
No purpose, it’s the inevitable result of using tax formulas for married people that aren’t precisely double the ones for single people.
It’s basically a rephrasing for political purposes. There is no such actual tax. It is a very hard to figure out a fair way of taxing two people as a single entity without having them pay more/less tax than as individuals.
If one person works, earning a fairly decent income, and the other doesn’t at all, then being married brings their taxes down quite a bit. If they both work, and esp. if they bring in considerable dough, then they end up paying more taxes than if they weren’t married. This generally hits wealthy people more.
Note that no one seems to care about the first case. (Actually they do, but the media doesn’t report it.) So, the common fixes to this “inequity” involves cutting the taxes of the latter group at the expense of the former.
So when you here phrases such as “marriage tax” and such, the person has a political or financial angle in mind. Actual tax experts don’t use such terminology.
well, being newly married last year, I’ve noticed a big difference in my tax return.
It doesn’t matter what you earned, nor your spouse. You are given a set deduction when married.
If anyone wants to be an asshole, you can ask for the cite. (am I the only one tired of being asked for this?)
Should my wife and I filed seperatly, we would have saved $281, not enough to agitate, but enough to bitch. Bottom line, we would have saved money by divorcing and filing singally
Maybe your asked about it so much because you mis-state the situation. Of course you’re given a set deduction when married. Everybody is given a set deduction. It’s called the standard deduction, and as of 2002 it was $4,700 for singles and $7,850 for married couples. You may not like it that the married figure is not exactly twice the single figure, but complaining about the fact that it’s “set” is nonsensical.
OK then, if there is no such thing, then when Bush had lowering the marriage penalty tax as one of his accomplishments, what did he lower if it didn’t exist?
My understanding is that the deduction for a married couple is not as much as for two single people because of the assumption that their cost of living is less than two people living independently. Utilities are higher for a couple than for someone living alone, but not twice as high, and while a couple needs more room than a single person, their housing costs aren’t going to be twice as high.
Actually, I’ve noticed that they hold a hell of a lot less tax out of my check now than they did when I was single.
It’s not just deductions, it also can affect tax brackets and such. Which is why the relative proportion of income earned by each person plays a role in whether you gain or lose.
All I know is that the tax returns for my wife and I were way lower than tax returns for me when I was single, and in the almost six years that we’ve been married, only in the past year or two have they been at or around what I use to get when I was single.
Bingo.
Now, why are childless people taxed at a higher rate that people with children.
Actually, you are the only person I’ve ever seen use the phrase “marriage penalty tax”. I have frequently heard of “marriage penalty”, which others have explained as being a facet of the current (US) tax system, but there is no separate tax. Bush was referring to removing the marriage penalty aspect of the current tax system.
Maybe I didn’t state it correctly. The new tax structure doesn’t lower the tax rate for married people. It increases the standard deduction, thereby lowering the overall taxable income.
OK, here’s the straight dope on the marriage penalty and the marriage bonus (betcha never heard of that last one).
Say two people get married and they both make $50,000 a year. It used to be the case that the standard deduction for married people was less than two times the standard deduction for single people. Therefore, these people were hurt by getting married, and people call this the marriage penalty.
Say two people get married and one makes $100,000 a year while the other makes $30,000 a year. As we all know, different levels of income are taxed at different rates, with the rate getting higher as the amount of income one earns gets higher. So, some of the high-bracket income of the high income earner effectively gets shoved over into the lower brackets of the lower income earner, so the couple will actually benefit from getting married (the marriage bonus).
I don’t remember which year(s) the author was citing, but I read an article a couple of years ago stating that 51% of couples had a net marriage bonus while only the other 49% paid a marriage penalty. But guess which one gets all the press?
I know that at least for 2004 (and maybe also for 2003), the standard deduction for married people filing jointly is exactly twice the standard deduction for single filers, so no taxpayer will experience a marriage penalty effect, and married taxpayers with disparate incomes will still get a marriage bonus effect.
TaxGuy, doesn’t progressive taxation come into play as well? Also, any couple who’s deductions exceed the standard deduction will suffer the marriage penalty since they cannot independently choose whether or not to take the standard deduction as they could if they were single.
Oh, I could have sworn that the word tax was in there somewhere, but I see that I was mistaken. I will henceforth stop using it. Thank you for setting me straight. 
Essentially the debate comes down to this: Whether there’s a marriage bonus or a marriage penalty depends on the distribution of income of the couple.
If the two earners have about equal incomes their tax bill comes out one way (either cheaper or more expensive) compared to them being single and filing sperately.
And under the exact same laws if their incomes are very unequal their tax bill comes out the other way (either more expensive or cheaper) compared to them being single and filing sperately.
So every few years Congress fiddles the rates to change which group is penalzed and which group is bonus-ized.
The Democrats prefer to give the bonus (ie the subsidy) to the household with the equal-opportunity wife earning about the same income as her husband. Why? That matches their idea of the ideal family.
The Republicans prefer to give the bonus (ie the subsidy) to the household with the almost-stay-at-home low-paid wife and the almost-sole-breadwinner much better-paid husband. Why? That matches their idea of the ideal family.
Guess which group the Republicans just helped and which group they just hurt with the latest changes?
They are not taxed at a higher rate. Their income is taxed at the same percentage rate as someone with children at the same income. The only difference is that people with children get exemptions for children. The exemption is a fixed dollar amount that will result in a limited reduction of income tax. The reduction increases as your highest marginal bracket increase, but remember, we’re comparing two people at the same income.
I don’t know the origin of the exemption for children but it is probably due to the fact that having children is generally considered socially and possibly economically desirable behavior and children require expenses without producing income.
Either that or lots of voters have kids.
Other questions debated endlessly:
Why can you deduct mortgage interest?
Why could you deduct consumer debt interest several years ago but not anymore?
Why don’t you have to pay taxes on unrealized gains?
Why are charitable contributions deductible?
There’s a simple answer to this whole problem. Why can’t the total income for the household be split between the two spouses in the way they see fit and tax them as single people? Deductions could also be split as desired.
In the UK, each person gets an allowance. Each person is taxed separately. A spouse can transfer all or part of their allowance to the other spouse. There is no married person’s allowance. That seems like a fair system to me. You cannot split the income in any way you see fit, but I think that would not be a fair system - it would allow you to move income from a higher tax-rate payer to a lower. I don’t see any justification for that - it would be purely a bonus for getting married.