Personal Finance

Some taxpayers still face a 'marriage penalty' despite fixes in the tax code

Key Points
  • Although the Tax Cuts and Jobs Act eliminated the "marriage penalty" embedded in the tax brackets for most households, high earners may still pay more as a married couple.
  • For taxpayers with lower incomes, the earned income tax credit may cause a higher tax bill after marriage.

The new tax law that took effect last year eliminated the so-called "marriage penalty" for many couples. For others, not so much.

The term refers to paying more in taxes as a married couple than you would as two single filers. And depending on your income, the credits or deductions you use and where you live, you could still pay higher taxes by getting married.

"It's more typical for people to have a marriage bonus, but there are tax provisions that are not adjusted for marriage," said Kyle Pomerleau, director of the Center for Quantitative Analysis at the Tax Foundation, a nonprofit think tank.

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Before the Tax Cuts and Jobs Act, which took effect last year, a larger swath of taxpayers faced higher tax bills after marriage. While the legislation adjusted the tax brackets to eliminate the issue for all but the highest earners, other parts of the tax code still can cause married couples to owe more.

"Typically it occurs when two individuals with identical or similar incomes are married," said Robert Westley, a CPA who serves on a credentialing committee for the American Institute of CPAs.

Higher earners

For those whose earnings are at the higher end, a bigger tax bill can come from different sources.

For starters, the top federal tax rate of 37 percent kicks in for income above $500,000 for single filers. Yet for married couples, that rate gets applied to income over $600,000.

For illustration: two individuals who each have income of $500,000 would pay the second-highest rate, 35 percent, on their income if they filed as single taxpayers.

All brackets get doubled except for top earners

Tax rate Single filer Married filing jointly
10%$0-$9,525$0-$19,050
12%$9,525-$38,700$19,050-$77,400
22%$38,700-$82,500$77,400-$165,000
24%$82,500-$157,500$165,000-$315,000
32%$157,500-$200,000$315,000-$400,000
35%$200,000-$500,000$400,000-$600,000
37%Over $500,000$Over $600,000

However, as a married couple with combined income of $1 million, they would pay 37 percent on $400,000 (the difference between their income and the $600,000 threshold for the highest rate). That would mean paying $8,000 more in income taxes.

Other parts of the tax code can also generate a higher bill. For instance, while an individual can have up to $200,000 in income before the Medicare surtax of 0.9 percent kicks in, the limit for married couples is $250,000.

Additionally, the new limit on the deduction for state and local taxes — also known as SALT — is not doubled for married couples. The $10,000 cap applies to both single filers and married filers. (Married couples filing separately get $5,000 each for the deduction).

Of course, the deduction only is available to taxpayers who itemize, and fewer people are expected to do so on their 2018 returns due to the doubling of the standard deduction. Itemizing married couples in higher-tax states — including New Jersey, California and New York — could be more affected by it, Westley said.

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Lower earners

For those with incomes at the other end of the earnings spectrum, a marriage penalty can come from the earned income tax credit.

The credit is generally available to working taxpayers with children, as long as they meet income limits and other requirements. Some low earners with no children also are eligible for it. Because it is refundable — meaning it could result in a refund even if your tax bill is zero — it is considered valuable to working parents with low or modest income.

However, the income limits associated with the tax break are not doubled for married couples. So two people with income of $25,000 each and one child would pay $3,117 less in taxes if they remained unmarried, according to the Tax Policy Center, a nonprofit research group. The reason is that their $50,000 combined income exceeds the income limit for married couples with one child.

Earned income tax credit (2018 tax year)

Number of children Max. credit available Max. earnings, single filers/head of household Max. earnings, married filing jointly
0$519 $15,270 $20,950
1$3,461 $40,320 $46,010
2$5,716 $45,802 $51,492
3 or more$6,431 $49,194 $54,884

Also, if you're a retiree on Social Security, be aware that tying the knot can come with additional tax implications. For single filers, if the total of your adjusted gross income, nontaxable interest and half of your Social Security benefits is under $25,000, you don't owe taxes on those benefits. However, for married couples filing a joint return, the threshold is $32,000 instead of double the amount for individuals.

At the state level

Some states also have a marriage penalty for taxpayers. However, the impact can be minimal in some places due to the highest tax bracket kicking in at a very low amount.

For instance, in Missouri, the highest tax rate of 5.9 percent applies to income of $9,072 or more for both single and married couples filing jointly.

In other states, the marriage penalty can be more pronounced for some earners. For example, Maryland's top rate of 5.75 percent applies to income above $250,000 for single filers and $300,000 for married couples.

More from Personal Finance:
Withheld too little tax in 2018? The IRS might give you a pass on penalties
Ready, set, file: Everything you need to know about completing your 2018 return
What to know before you take an advance on your tax refund

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