Can anyone explain the alleged marriage penalty to me?

[Zorbet55]

I have heard this Repuke theme time and time again and never known what this was. Once married but now divorced without dependents, I think there is a definite singles penalty regarding tax exemptions. I mean singles get fewer exemptions on their federal tax return. So, is there something that penalizes married couples that I am not aware of? Just curious.

[LoZoccolo]

1. Your combined income may push you into a higher tax-bracket. n/t

[Worst Username Ever]

2. I don't know the exact tax bracket break points, but essentially,

for example, if you make 50,000 a year as a single person, and your SO also makes 50,000 a year, you are both in the (just estimating) 30% tax bracket. But when filing jointly, and combining your income, the 30% tax bracket only goes to maybe 80,000 dollars. The other 20,000 is now in the 35% tax bracket, and you end up paying more taxes.

[BR_Parkway]

4. But there is a seperate tax rate for filing Jointly vs Married filing

Seperate. The different rate table is supposed to correct that.

[Worst Username Ever]

8. That is what I mean, but it still handicaps ya.

In my example above, if two single people are making 50K a year, and they remain in the 30% tax bracket, all is good. But in the joint-filing tax bracket, hypothetically the 30% tax bracket goes to 80K. It is indeed higher, but not high enough to compensate for the fact that they are both still making 50K each. It pushes part of their income into a higher bracket.

I think this was originally done because it was (wrongly) assumed that one person would be staying home, and thus the "bread-winner" would actually be getting a tax BREAK because he/she now could make up to 80K a year and still be in the 30% tax bracket.

[slackmaster]

14. Married filing separate tends to hit men who are getting divorced hardest

One big reason I pushed to finally end my marriage several years ago was that in a still legally married but separated condition, I got A) no deduction benefit for my stepson and B) the much higher tax rate for being married filing separate.

At that time my then estranged wife was able to file as Head of Household and get both the benefit for the child and the low HoH tax rate.

[slackmaster]

3. It applies to couples with two incomes

If you are married your tax rate is based on your combined income, and (depending on exactly how much you make) you will end up paying a higher tax rate, i.e. more tax, than if you were unmarried. It's cheaper in terms of taxes for a couple to not be married than to be married.

The worst tax rates are for people who are in mid-divorce and file as "married filing separately". That typically happens to the one who is not getting custody of children. The one getting custody can file as "Head Of Household", which is the lowest rates.

[Larkspur]

5. Singles and married filing seperately pay higher taxes than

married filing jointly. See the tax tables.

Progressive income tax means that the more you make the more tax you pay, so I don't have sympathy for dual income marrieds.

[slackmaster]

11. Nope, you haven't consided the effect of combining income

Here's a concrete example to prove there is a marriage penalty.

All income figures are Adjusted Gross Income in this example, using 2003 tax rates:

- For a single person, everything over 68,800, up to 143,500, got taxed at 28%. The first $68,800 was taxed at 25%.

- For a married couple, everything over $114,650 up to 174,700 got taxed at 28%. The first $114,650 was taxed at 25%.

So two unmarried people sharing a household and expenses could have had a combined income of $137,600 (twice $68,800) and paid 25% on the whole amount - a total of $34,440 in federal income tax.

OTOH a married couple with an AGI of $137,600 would have paid $28,662.50 on the first $114,650, plus another $6,426 on the rest (at 28%), for a total of $35,088.50.

Thus a marriage penalty of $648.50 as compared to the same people, same jobs, same living situation but unmarried.

[Larkspur]

6. No, the lowest rate is Married filing jointly

Singles heads of households are the next lowest rate after married filing jointly.

[Zorbet55]

9. This kind of reminds me of the home interest write-off.

If you choose to buy a home and pay interest, then you get a reduction of tax liability? If you are a single, then you may prefer a communal apartment, but you get penalized for it as if you were guilty of something.

[slackmaster]

15. The reason behind it is the banking industry's lobbying

It's got NOTHING to do with penalizing people for a chosen lifestyle.

Here's the bottom line: Banks see no profit from people who rent. They would prefer to have you paying them large amounts of interest on long-term loans. Their lobbying is the reason for the big federal giveaway that is the mortgage interest deduction.

[Mountainman]

17. There are all kinds of write offs if you have the money to spend.

One reason they push for lowering taxes on dividends and interest income is because a lot of weathy people live off of investments. They can have incomes in the millions yet pay little or no tax.

The rule is like this, thems that got is thems that get.

[slackmaster]

21. Wealthy retired people also "move" to states w/no income tax

I have met many people who live on fixed, taxable incomes, live 11 months of the year in coastal California resort areas, and maintain official residence in Texas, Nevada, or Tennessee. They can afford to keep up the charade of a "summer beach house" in La Jolla or Del Mar while pretending to have a permanent home in Las Vegas.

I don't expect to be able to afford that tax break. If I move out of California in retirement it will be for real.

[slackmaster]

12. Nope, Head of Household is lowest - look at the tables

http://www.irs.ustreas.gov/formspubs/article/0%2C%2Cid=109877%2C00.html

See what income level you have to make in order to qualify for one of the middle rates, e.g. 25% or 28%.

Head of Household is not the same as single. Head of Household is a special category for people with dependents like children and disabled adults. Single is for people who have not yet acquired any dependents.

[kick-ass-bob]

7. I thought it was the standard deduction thing.

These numbers are not the actuals, just examples:
Std Ded for single: $5000.
Std Ded for married filing joint: $7500.

So Instead of $10000 (if it were 2 people separate) it is only $7500.

Am I wrong about this? Is there something else?

[Rainbowreflect]

10. You are correct.

My feeling is that there should be a set deduction for each person in the household period. No penalties or rewards for married, single, kids or no kids.

[slackmaster]

16. I think people should be penalized for having too many kids

The more kids, the less tax break you get.

[Rainbowreflect]

18. Ok that I could go with since those of us with no kids are

paying for those with lots of kids.

[slackmaster]

19. I don't mind paying for public education

The cost of NOT educating everyone's kids would surely be higher. But I think people who have lots of children (note I'm not specifying an actual number) put an unfair strain on resources.

[Rainbowreflect]

20. I support public education.

[slackmaster]

13. The standard deduction difference amplifies the effect somewhat

The biggest hit is in the tax tables, and what rates you hit when you combine incomes.

http://www.irs.ustreas.gov/formspubs/article/0%2C%2Cid=109877%2C00.html

[Egalitariat]

25. That's it. All other explanations are erroneous****

nm

[ClassWarrior]

22. Yes, it is a marketing phrase used to re-frame the debate.

That's all.

NGU.

[K-W]

23. It was created when they removed the Singles Penalty, now isnt that funny?

First came individual income tax.
Then came the marriage bonus, couples filing jointly enjoyed lower taxes. Single people called this a singles penalty, and had the tax code changed to remove it.

The whole situation is a result of the legislators wanting to have thier cake and eat it too. The problem is, when you give tax bonus to people of one status, people of a different status see it as a penalty.

Here is a good link
http://www.cbo.gov/showdoc.cfm?index=322&sequence=0

[russiamommy]

24. It hits 2 income families

The best tax rate overall is Married Filing Joint. Married seperate has the highest rates. The problem is that if you combine two incomes, it pushes you into a higher tax bracket that may be higher than if both of you filed single. If only one spouse works, there is no marriage penalty. We pay a substantial penalty every year and it irks me to no end. The so called "relief" didn't do anything for us either because it simply increased the standard deduction. For anyone that itemizes, this doesn't help at all.