Some newlyweds may face a higher tax bill due to a 'marriage penalty.' What to know
- A "marriage tax penalty" occurs when tax-bracket thresholds, deductions and credits are not double the amount allowed for single filers.
- Both higher- and lower-income households can face such a penalty.
- It can happen at both the federal and state level, depending on where you live.
If you got married in 2022, you can add "tax return" to the list of things you'll now be sharing.
For some newlyweds, this is going to mean a bigger tax bill due to a so-called "marriage tax penalty." It can happen when tax-bracket thresholds, deductions and credits are not double the amount allowed for single filers — and it can hurt both high- and low-income households.
"The penalty can be as high as 12% of a married couple's income," said Garrett Watson, a senior policy analyst at the Tax Foundation.
For marriages taking place at any point last year, spouses are required to file their 2022 tax returns — due April 18 — as a married couple, either jointly or separately. (However, filing separate returns is only financially beneficial for spouses in certain situations.)
High earners may face several of these penalties
A bigger tax bill can come from a few different sources for higher earners.
For starters, for 2022 tax returns, the top federal rate of 37% kicks in at taxable income above $539,900 for single filers. Yet for married couples filing jointly, that rate gets applied to income of $647,851 or more. (For 2023, those thresholds are $578,125 and $693,750, respectively.)
For example, two individuals who each have $500,000 in income would fall into the tax bracket with the second-highest rate (35%), if they filed as single taxpayers.
However, as a married couple with joint income of $1 million in 2022, they would pay 37% on $352,149 of that (the difference between their income and the $647,851 threshold for the higher rate).
"If you both have income in that bracket, you're going to see a penalty," Watson said.
Medicare, investment-income taxes also can sting
There also are other parts of the tax code that can negatively affect higher earners when they marry.
For instance, the regular Medicare tax on wages — 3.8%, which is split between employer and employee — applies to earnings up to $200,000 for single taxpayers. Anything above that is subject to an additional Medicare tax of 0.9%. For married couples, that extra tax kicks in at $250,000.
Likewise, there's a 3.8% investment-income tax that applies to singles with modified adjusted gross income above $200,000. Married couples must pay the levy if that income measurement 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 write-off is available only to taxpayers who itemize their deductions, and most take the standard deduction instead.
Lower-income households also can suffer
For newlyweds with lower income, a marriage penalty can arise from the earned income tax credit.
"The credit [thresholds] are not double that of single filers," Watson said. "It's of particular concern for lower-income households."
For example, a single taxpayer with three or more children can qualify for a maximum credit of $6,935 with income up to $53,057 on their 2022 return. For married couples, that income cap isn't much higher: $59,187.
This credit is 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.
Some states also have the penalty in their tax code
Additionally, depending on where you live, there may be a marriage penalty built into your state's marginal tax brackets. For example, Maryland's top rate of 5.75% applies to income above $250,000 for single filers but 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, according to the Tax Foundation.
Meanwhile, if you're already receiving your Social Security retirement benefits, getting married can have 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.