I have a friend (yes, a friend, and stop that snickering!) who lives with his girlfriend and their four-year-old daughter. He thinks that if they get married his tax bill will go up. What’s he talking about? For tax purposes, is it better to be married or single?
IANACPA, and the real answer is going to depend on a huge variety of factors, but here’s a very simple rule of thumb:
a) If the two adults have similar incomes, especially if these incomes are high, they’re better off (in tax terms) staying single. This is the so called “marriage penalty”.
b) If there is a large disparity in income between the two partners, there’s a tax advantage to getting married. This is because the high-income partner (let’s say it’s your friend) now has additional dependents that he can claim, thus reducing “his” tax liability. This more than offsets the progressive tax increase due to the increased income of the couple compared to him as a single filer.
If they were married, and he died, she could inherit everything without paying taxes on it. But if they are not married, all that she inherits is taxable income to her. If he’s rich, could be a really big difference there.
IANACPA, and I’m sure this varies with the circumstances, but the “marriage penalty” happens because if both husband and wife work, and file jointly, they usually pay more in tax than they would if they filed separately. On the other hand, if only one spouse works and they file jointly, then they pay much LESS in taxes than the breadwinning spouse would have to pay if that spouse filed individually.
Whatever the answer to the tax question, what your friend is really talking about is excuses. He doesn’t want to get married.
Also, the marriage penalty has been substantially reduced, if not eliminated, through Bush’s 2001, 2003, and 2004 tax cuts. Basically, the standard deduction for married couples has been increased, as well as the 15% tax bracket for couples. That means also that the tax benefits of marriage have significantly increased for those couples that have one partner who brings home most of the income.