- The penalty means a married couple pays more in taxes than if they had remained unmarried and filed as single taxpayers.
- It comes into play when tax-bracket thresholds, and deductions or credits, are not double the amount allowed for single filers.
If you tied the knot last year, it may be worthwhile checking what your new status will mean for your 2020 taxes.
While many couples see their tax bill drop post-nuptials, some face a "marriage penalty" — that is, paying more in taxes than if they had remained unmarried and filed as single taxpayers.
"In some cases, it can save you money and sometimes it costs you money," said certified financial planner and CPA Jeffrey Levine, chief planning officer at Buckingham Wealth Partners in Long Island, New York. "But it doesn't cost as much as the wedding."
Basically, the marriage penalty occurs when tax-bracket thresholds, and deductions or credits, are not double the amount allowed for single filers. So, newlyweds sometimes find that a bigger tax bill is an unfortunate side effect of marriage.
For marriages that occurred at any point last year, you'll be required to file your 2020 tax return jointly as a married couple. (Filing separate tax returns as a married couple rarely makes financial sense.)
The IRS will start accepting returns on Feb. 12. The agency expects more than 150 million tax returns to be filed this year, with the vast majority before the April 15 deadline.
Here's what to know about the marriage tax penalty.
A bigger tax bill can come from a few different sources for higher earners.
For 2020 returns, the top federal rate of 37% kicks in at taxable income of $518,400 for single filers. Yet for married couples filing jointly, that rate gets applied to income of $622,050 and higher.
"All the tax brackets are exactly double for married couples filing jointly except for the top rate," said Erica York, an economist with the Tax Foundation's Center for Federal Tax Policy.
For illustration: Two individuals who each have income of $500,000 would pay the second-highest rate, 35%, if they filed as single taxpayers.
However, as a married couple with combined income of $1 million, they would pay 37% on $377,950 of that (the difference between their income and the $622,050 threshold for the highest rate). That would mean paying about $7,760 more in income taxes for 2020.
There are other provisions of the tax code that can often affect higher earners more when they marry. For instance, while an individual can have up to $200,000 in wage income before the Medicare surtax of 0.9% kicks in, the limit for married couples is $250,000.
Likewise, the income threshold for the 3.8% investment-income tax is not doubled. Singles with modified adjusted gross income above $200,000 pay the tax, while married couples filing jointly pay it if their income exceeds $250,000. (The tax applies to things such as interest, dividends, capital gains and rental or royalty income.)
Additionally, the 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). However, the deduction is available only to taxpayers who itemize.
For people 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's refundable — meaning it could result in a refund even if your tax bill is zero — it's considered valuable to working parents with low or modest income.
However, the income limits that come with the tax break are not doubled for married couples (see chart).
Fifteen states also have a marriage penalty for taxpayers built into their marginal tax brackets, although it's more pointed in some places than others. For example, for 2020, Maryland's top rate of 5.75% applies to income above $250,000 for single filers and above $300,000 for married couples.
Some states allow married couples to file separately on the same return to avoid getting hit with a penalty and the loss of credits or exemptions.
"It's a workaround for the penalty that would otherwise occur," said York at the Tax Foundation.
If you're retired and already receiving Social Security, be aware that getting married can have 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 won'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.
Additionally, if you or your new spouse contributed to traditional or Roth individual retirement accounts in 2020, pay attention to how much you put in those IRAs. There are limits that apply to deductions and contributions, and income from both spouses feeds the equation.
The Tax Policy Center has a marriage calculator that allows you to plug in the details of your and your partner's financial life — wage income, business income, children you claim as dependents, etc. — to see how your taxes will shape up when you file as a married couple.