Marriage penalty
Encyclopedia
The marriage penalty in the United States
refers to the higher taxes required from some married couples, where spouses are making approximately the same taxable income
, filing one tax return
("married filing jointly") than for the same two people filing two separate tax returns if they were unmarried (i.e., filing as "single", not "married filing separately"). The percentage of couples affected has varied over the years, depending on shifts in tax rates.
The source of this increase in taxes has its roots in the progressive
tax-rate structure in income-tax laws that is, the earner of a higher income pays a higher rate of tax on the last dollar of income. It is mathematically impossible for an income tax system to have all three of these features simultaneously: joint filing for married couples; marginal tax rate
s that increase with income; and independence of a couple's tax bill from their marital status. With increasing marginal tax rates, income averaging is advantageous to the taxpayer.
For example, if two persons, one making $80,000 and the other making $20,000 in a particular year, can file as if they have equal $50,000 incomes, they will pay a lower combined tax than they would if they paid tax on their own income. So if the married-filing-jointly tax rate schedule is designed to give a tax bill the same as would occur if the couple's incomes were equal to the members' average and if they were single, they will have an advantage in being married.
In the United States before 1969, income averaging (the married filing jointly status) was advantageous to a married couple with different incomes. To compensate for that somewhat, starting in 1969 the U.S. adopted a higher set of tax bracket
s for the averaged income of a married couple. Under the revised tax brackets, while income averaging might still benefit a married couple with a stay-at-home spouse (with incomes so far apart that the tax saving from income averaging outweighed the higher tax brackets), a married couple with roughly equal personal incomes would pay more total tax than they would as two single persons.
tried to offset what was then an advantage for couples compared to single taxpayers.
In 1996, 42% of married taxpayers paid more because they were filing jointly than they would have if they had remained single according to a 1997 Congressional Budget Office
(CBO) analysis. The average penalty among these couples was $1,380. Conversely, the same CBO analysis concluded that 51% of married couples paid less tax jointly than if they had not been married, with average savings of $1,300. The reason that one couple would receive a benefit while another would receive a penalty lay in whether the couple's individual incomes were disparate (resulting in a benefit) or roughly equal (resulting in a penalty).
Since then, several pieces of legislation have been passed to do away with the penalties further. For example, the Economic Growth and Tax Relief Reconciliation Act of 2001
introduced section 1(f)(8) to the Internal Revenue Code, which mitigates the marriage penalty effect in the lower tax brackets. Section 1(f)(8) adjusts the ceiling of the 15% tax bracket for joint return filers relative to the ceiling of the 15 percent tax bracket for unmarried spouses.
The Jobs and Growth Tax Relief Reconciliation Act of 2003
accelerated the benefit to joint return filers by eliminating the marriage penalty for 2003 and 2004 and the Working Families Tax Relief Act of 2004 extended the benefit to 2005–07. Therefore, the marriage penalty in the lower tax brackets will be eliminated through 2010. Unless reauthorized by Congress, however, the marriage penalty will return in 2011. However, through passing those pieces of legislation, the tax system is now such that couples with disparate incomes will pay less tax than they would have paid as two single taxpayers.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
refers to the higher taxes required from some married couples, where spouses are making approximately the same taxable income
Taxable income
Taxable income refers to the base upon which an income tax system imposes tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. The amounts included as income, expenses, and other deductions vary by country or system. Many systems provide that...
, filing one tax return
Tax return (United States)
Tax returns in the United States are reports filed with the Internal Revenue Service or with the state or local tax collection agency containing information used to calculate income tax or other taxes...
("married filing jointly") than for the same two people filing two separate tax returns if they were unmarried (i.e., filing as "single", not "married filing separately"). The percentage of couples affected has varied over the years, depending on shifts in tax rates.
The source of this increase in taxes has its roots in the progressive
Progressive tax
A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate...
tax-rate structure in income-tax laws that is, the earner of a higher income pays a higher rate of tax on the last dollar of income. It is mathematically impossible for an income tax system to have all three of these features simultaneously: joint filing for married couples; marginal tax rate
Marginal tax rate
In a tax system and in economics, the tax rate describes the burden ratio at which a business or person is taxed. There are several methods used to present a tax rate: statutory, average, marginal, effective, effective average, and effective marginal...
s that increase with income; and independence of a couple's tax bill from their marital status. With increasing marginal tax rates, income averaging is advantageous to the taxpayer.
For example, if two persons, one making $80,000 and the other making $20,000 in a particular year, can file as if they have equal $50,000 incomes, they will pay a lower combined tax than they would if they paid tax on their own income. So if the married-filing-jointly tax rate schedule is designed to give a tax bill the same as would occur if the couple's incomes were equal to the members' average and if they were single, they will have an advantage in being married.
In the United States before 1969, income averaging (the married filing jointly status) was advantageous to a married couple with different incomes. To compensate for that somewhat, starting in 1969 the U.S. adopted a higher set of tax bracket
Tax bracket
Tax brackets are the divisions at which tax rates change in a progressive tax system . Essentially, they are the cutoff values for taxable income — income past a certain point will be taxed at a higher rate.-Example:Imagine that there are three tax brackets: 10%, 20%, and 30%...
s for the averaged income of a married couple. Under the revised tax brackets, while income averaging might still benefit a married couple with a stay-at-home spouse (with incomes so far apart that the tax saving from income averaging outweighed the higher tax brackets), a married couple with roughly equal personal incomes would pay more total tax than they would as two single persons.
Origin and actions to eliminate
The marriage penalty originated in 1969, when CongressUnited States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
tried to offset what was then an advantage for couples compared to single taxpayers.
In 1996, 42% of married taxpayers paid more because they were filing jointly than they would have if they had remained single according to a 1997 Congressional Budget Office
Congressional Budget Office
The Congressional Budget Office is a federal agency within the legislative branch of the United States government that provides economic data to Congress....
(CBO) analysis. The average penalty among these couples was $1,380. Conversely, the same CBO analysis concluded that 51% of married couples paid less tax jointly than if they had not been married, with average savings of $1,300. The reason that one couple would receive a benefit while another would receive a penalty lay in whether the couple's individual incomes were disparate (resulting in a benefit) or roughly equal (resulting in a penalty).
Since then, several pieces of legislation have been passed to do away with the penalties further. For example, the Economic Growth and Tax Relief Reconciliation Act of 2001
Economic Growth and Tax Relief Reconciliation Act of 2001
The Economic Growth and Tax Relief Reconciliation Act of 2001 , was a sweeping piece of tax legislation in the United States by President George W. Bush...
introduced section 1(f)(8) to the Internal Revenue Code, which mitigates the marriage penalty effect in the lower tax brackets. Section 1(f)(8) adjusts the ceiling of the 15% tax bracket for joint return filers relative to the ceiling of the 15 percent tax bracket for unmarried spouses.
The Jobs and Growth Tax Relief Reconciliation Act of 2003
Jobs and Growth Tax Relief Reconciliation Act of 2003
The Jobs and Growth Tax Relief Reconciliation Act of 2003 , was passed by the United States Congress on May 23, 2003 and signed into law by President George W. Bush on May 28, 2003...
accelerated the benefit to joint return filers by eliminating the marriage penalty for 2003 and 2004 and the Working Families Tax Relief Act of 2004 extended the benefit to 2005–07. Therefore, the marriage penalty in the lower tax brackets will be eliminated through 2010. Unless reauthorized by Congress, however, the marriage penalty will return in 2011. However, through passing those pieces of legislation, the tax system is now such that couples with disparate incomes will pay less tax than they would have paid as two single taxpayers.