Whatever happened to eliminating the marriage penalty?

[Acsenray]

I remember this hoopla a few years ago about how the saviors of the American taxpayer were eliminating the “marriage penalty.” My assumption was that this meant that a married couple filing jointly would pay no more tax than (assuming they had the same financial details) they would have if they had been filing separately as single people.

But every year I see my tax burden skyrocket when I add in my spouse’s information.

What gives?

Do I misunderstand the “marriage penalty”? Or did they not actually do anything?

[anson2995]

It has been a frequently discussed campaign issue, but it’s still alive and kicking.

[flurb]

Look at it from the politicians’ perspective: if you solve it, then you lose it as an issue.

[flex727]

@acsenray

But every year I see my tax burden skyrocket when I add in my spouse’s information.

Are you actually comparing your taxes when filing using the married tax tables to filing using the single tax tables? Most (though certainly not all) of the marriage penalty has been eliminated slowly over time. Keep in mind that for most everyone but two equal income earners, there is a marriage tax advantage, not penalty.

[DrDeth]

@acsenray

I remember this hoopla a few years ago about how the saviors of the American taxpayer were eliminating the “marriage penalty.” My assumption was that this meant that a married couple filing jointly would pay no more tax than (assuming they had the same financial details) they would have if they had been filing separately as single people.

But every year I see my tax burden skyrocket when I add in my spouse’s information.

What gives?

Do I misunderstand the “marriage penalty”? Or did they not actually do anything?

There never was one, so they can’t eliminate it. You misunderstand it.

Yes, if you both have pretty good incomes that are similar and you’d both be able to itemize, it can cost more to file joint than both file single. But it almost always costs less to file joint that to file Separate. There is a big advantge to filing joint if one spouse earns little or no money. That advantage goes away when you both earn good income, but it isn’t really a “penalty”.

[chowder]

Isn’t marriage itself a penalty?

Just askin’

[muldoonthief]

@DrDeth

There never was one, so they can’t eliminate it. You misunderstand it.

Yes, if you both have pretty good incomes that are similar and you’d both be able to itemize, it can cost more to file joint than both file single. But it almost always costs less to file joint that to file Separate. There is a big advantge to filing joint if one spouse earns little or no money. That advantage goes away when you both earn good income, but it isn’t really a “penalty”.

Well, it is a penalty just from your first statement. If 2 people who live together but aren’t married, do their taxes, and come up with a lower tax burden than 2 people in the exact same circumstances (same salary, property, deductions) who happen to be married and therefore are legally barred from filing as 2 singles, they’ve been penalized, in having to pay more tax, simply because they are married. The Married filing Separately status has nothing to do with it.

[Shagnasty]

@chowder

Isn’t marriage itself a penalty?

Just askin’

That is a good point. After a couple of years, a few thousand extra dollars in taxes is going to be the least of your concerns. The money is eventually going to go towards lawyers, alimony or child support anyway so you might as well get rid of it sooner rather than later.

[Acsenray]

@DrDeth

There never was one, so they can’t eliminate it. You misunderstand it.

Yes, if you both have pretty good incomes that are similar and you’d both be able to itemize, it can cost more to file joint than both file single. But it almost always costs less to file joint that to file Separate. There is a big advantge to filing joint if one spouse earns little or no money. That advantage goes away when you both earn good income, but it isn’t really a “penalty”.

This is what I’m doing … I’m first entering my income information into Turbo Tax. When I’m done, I get the “Your refund is X.” Then I enter my wife’s income information, and the refund plummets. If there is no marriage penalty, then the refund amount should never go down after the second income information is entered. So long as our tax burden filing jointly is higher than it would be if we had filed separately as unmarried people, then there is a marriage penalty.

[Ludovic]

@acsenray

This is what I’m doing … I’m first entering my income information into Turbo Tax. When I’m done, I get the “Your refund is X.” Then I enter my wife’s income information, and the refund plummets.

That obviously depends on how much has been withheld from your wife’s taxes versus yours. Even if it were subject to the exact same overall rate of tax the return could plummet if the withholding was done differently.

[Cluricaun]

@Shagnasty

That is a good point. After a couple of years, a few thousand extra dollars in taxes is going to be the least of your concerns. The money is eventually going to go towards lawyers, alimony or child support anyway so you might as well get rid of it sooner rather than later.

Or extra bed pillows and shams and blankets.

[flex727]

@acsenray

This is what I’m doing … I’m first entering my income information into Turbo Tax. When I’m done, I get the “Your refund is X.” Then I enter my wife’s income information, and the refund plummets. If there is no marriage penalty, then the refund amount should never go down after the second income information is entered. So long as our tax burden filing jointly is higher than it would be if we had filed separately as unmarried people, then there is a marriage penalty.

But that is not what you are doing in TurboTax. When you enter your income, I presume you are telling TT that you are married. Your refund is calculated based on that. Redo TT starting by telling it you are single, note your refund, then start over doing the same with your wife and add the two. Now compare that with your refund as a married couple. A pain, but the only way to calculate it correctly with the tool you are using.

[Acsenray]

@Ludovic

That obviously depends on how much has been withheld from your wife’s taxes versus yours. Even if it were subject to the exact same overall rate of tax the return could plummet if the withholding was done differently.

I don’t think either of us has a withholding rate that would result in taxes owed if we had filed separately. So, even if there is a difference, that still shouldn’t subtract from my refund amount.

[Cheesesteak]

@acsenray

So long as our tax burden filing jointly is higher than it would be if we had filed separately as unmarried people, then there is a marriage penalty.

To expand on Ludovic’s post… You did not compare Jointly to Separately, you compared a half complete Jointly to a fully complete Jointly.

If you want to do the accurate test, you have to complete your taxes Separately, then complete your wife’s taxes Separately and see what the total refund/payment is. You absolutely cannot judge this by doing half of the return, then doing the other half.

[Antinor01]

Did you start out indicating that you were going to file married filing jointly? To really compare refund totals you would have to run it as single for each, married filing separately for each and then married filing jointly to see the difference.

It could be other things, are her withholdings done the same as yours?

[Rocketeer]

Penalty or no, there’s an advantage for a society to reward marriage–it stabilizes young men, and keeps them from running riot. Same reason you want high employment.

[Lightnin]

Years ago, while calculating our first married tax filing, I surprised at how much money we owed… so I recalculated as if we were two singles, living together. The difference between the two was over $1500. That was the first time I’d ever heard of the “marriage penalty”.

I called up my uncle, a CPA, and asked him if we were allowed to file as two singles- he told us we couldn’t… and I was simply shocked. Why were we being penalized for being married?

I sent email to various state reps, and as a result my wife and I eventually ended up on the front page of the local paper on April 15th, over a story on the tax penalty. That was kinda neat, but we still lost all that money.

We haven’t been hit hard by it since that first year, since my income has greatly increased yet my wife’s has stayed roughly the same… but I still can’t believe they haven’t done anything about it. I could swear Bush said something about trying to fix it.

[Gfactor]

They did some stuff, made it temporary, extended parts of it, didn’t do it completely, you know, the usual.

The new law extended the 10 percent rate to cover the first $7,000 of taxable income for single persons, $14,000 for married couples. It also lowered the tax rates above 15 percent to 25, 28, 33 and 35 percent. This is a drop of two percentage points for each rate except the top one, which went down 3.6 points.

The new law also raised the standard deduction for married couples to $9,500 and extended their 15 percent tax rate to $56,800 of taxable income. Each figure is double the number for single taxpayers. The changes reduce the “marriage penalty” – the difference between the tax couples pay and the amount they would have paid as two single persons.

http://www.irs.gov/newsroom/article/0,,id=109817,00.html

For 2004, the marriage penalty has largely been eliminated. Now, the standard deduction for married taxpayers is exactly twice that of single taxpayers. Lawmakers also widened the 15% tax bracket for married couples.

Some couples will still suffer the sting of a marriage penalty, but far fewer than in earlier years. You and your sweetie will probably not be in that category of sting-sufferers, because your incomes are not that high.

Unfortunately, this break is due to expire in 2005, at which time another – less favorable – relief provision kicks in. In the world of politics, no tax law is safe for long. Stay tuned.

http://www.nolo.com/article.cfm/objectId/5B7956EA-BE9D-4062-8E842805F2E55AE3/118/304/145/QNA/

Two provisions that provide a measure of relief from the marriage penalty are extended by the Act. The provision setting the basic standard deduction for joint filers at twice that of single taxpayers, and the provision that increases the size of the 15-percent rate bracket for married couples filing joint returns, both of which were due to expire at the end of 2004, are extended through 2010.

The marriage penalty refers to tax-law oddities that force millions of two-income married couples each year to pay more in federal income taxes together than they would owe if each spouse were single. In recent years, the law has provided a degree of relief from the marriage penalty in two ways. First, the basic standard deduction for a married couple filing a joint return has been increased so that it equals twice the basic standard deduction for an unmarried individual filing a single return. Second, it increases the size of the 15-percent rate bracket for married couples filing joint returns. Under pre-Act law, however, these provisions were due to expire at the end of 2004. The Act extends both these provisions through 2010. Thus, for 2005 through 2010, the basic standard deduction for married taxpayers filing jointly will be twice the basic standard deduction of single taxpayers and the basic standard deduction for married taxpayers filing separately will be equal to the basic standard deduction of single taxpayers. Likewise, for 2005 through 2010, the endpoint of the 15% tax bracket for joint returns will be twice the endpoint of the 15% tax bracket for single returns.

http://www.offshorepress.com/wftra2004.htm

And see, http://www.us.kpmg.com/microsite/taxnewsflash/2001/TaxBook/marriage.html
Marriage penalties and bonuses | Tax Policy Center
http://findarticles.com/p/articles/mi_qn4180/is_20010713/ai_n10067058

[Antinor01]

Does anyone have an example of the ‘marriage penalty’ in action? I’ve run numbers based on the IRS tax table for several situations and have yet to find one where married filing jointly comes out with a higher tax than two singles. Such as, total of 60K taxable income, married FJ tax is 8221. Single tax rate on 30K x 2 is 8226. Single rate for 20k and 40k combined is 9043. Married FJ comes out ahead. I’m having similar results with other permutations. This is only based on the tax table and obviously isn’t taking into account any deductions or other things, but so far I’m not seeing it. Can anyone help me out here?

[Cyberhwk]

@Ludovic

That obviously depends on how much has been withheld from your wife’s taxes versus yours. Even if it were subject to the exact same overall rate of tax the return could plummet if the withholding was done differently.

Yeah. I’m SINGLE but have two different W-2s this year. I had almost a $1000 return when I was half finished (my second W-2 was late). I was pumped about finally getting a decent return instead of the $200-$300 I usually get. So I added my second return…dropped my return to $325. Same as last year.