For people for whom being married is penalty enough, imposing a fee on top of it for the privilege of being married is adding insult to injury. But that’s what the marriage penalty tax does.
There’s no section in the Tax Code titled “Marriage Penalty Tax,” but it is a consequence of the code, observed Joyce Beebe, a fellow in the Center for Public Finance at Rice University’s Baker Institute for Public Policy.
“For the last half century, many Americans have paid higher income taxes after they marry because they stop filing their tax returns as single individuals and instead file joint returns,” she said. “Some of them also see reduced tax credits or lower tax preferences.”
“The cause of the marriage penalty is rooted in three objectives of the U.S. tax system that are intrinsically conflicting,” she observed. “A progressive tax system, treating the family as a unit, and marriage neutrality are all worthy objectives, but they can’t all be met at once,” she explained.
Taxing the family as a unit as opposed to taxing the members as individuals is designed to ensure that households with the same income pay the same amount of income taxes, regardless of who earns the income, she explained: “A couple whose income is split $200,000 and $0 should have the same tax liability as a couple that earns $100,000 and $100,000. Because families can pool resources together in ways that individuals cannot, the tax system views the family as a tax unit, instead of the individuals within the family. The third objective, marriage neutrality, means that a couple’s marital status should not influence their tax liability.”
“But you can only achieve two out of three of these objectives in any system,” she continued. “Every country has to choose which two of the three they would like. We decided a long time ago — 50 years, in fact — that we would not keep marriage neutrality, or that we would sacrifice part of it because the other two are more important.”
The Tax Cuts and Jobs Act has somewhat improved the situation, according to Beebe.
“The tax rates and tables make things better under the TCJA,” she said. “Prior to the TCJA, two unmarried people who both earn $100,000 would each pay $18,139 in taxes, or $36,278 total,” she said. “After marriage, the couple would pay a combined $37,060 in taxes, an increase of $782,” because joint reporting pushes some of their income into the higher 28 percent bracket.
“For this couple the tax system treats them jointly as a unit and maintains the progressive rate structure, which satisfies the tax system’s first and second objectives,” she said. “However, they pay more tax as a result of the marriage, which violates the marriage neutrality principle.”
Two proposals to ameliorate the marriage penalty — widening the tax brackets and raising the standard deduction for joint filers — were incorporated in the TCJA, Beebe observed. But the TCJA’s $10,000 SALT cap works the other way, she indicated: “Two single taxpayers can each claim $10,000 on their return, but a married household filing a joint return only gets to claim $10,000. They didn’t really intend to impose a penalty on a married couple with the SALT cap, but that’s essentially what they did,” she said.
| Rate | Income range: Single filers | Income range: Joint filers |
| 10% | $0-$9,525 | $0-$19,050 |
| 12% | $9,526-$38,700 | $19,051-$77,400 |
| 22% | $38,701-$82,500 | $77,401-$165,000 |
| 24% | $82,501-$157,500 | $165,001-$315,000 |
| 32% | $157,501-$200,000 | $315,001-$400,000 |
| 35% | $200,000-$500,000 | $400,001-$600,000 |
| 37% | Over $500,000 | Over $600,000 |
Beebe, who was at several Big Four firms prior to her research fellowship at Rice University, said she decided to volunteer for the Volunteer Income Tax Assistance program this past tax season. “Low-income taxpayers were not our clientele, and it was one area I never touched,” she said. “I saw how important the Earned Income Tax Credit is for these people. It didn’t change much under the TCJA. What really impacted them was the standard deduction and the repeal of personal exemptions.”
“If I file as a head of household — I’m a single mother with one child — I have a standard deduction of $18,000. Suppose I meet a nice guy and we decide to get married. If he’s single, his standard deduction is $12,000, so we have $30,000 between the two of us,” she said. “But if we get married, our standard deduction as joint filers will be $24,000, so we’ve lost $6,000 right there. To make matters worse, let’s say he also has one child and files as a head of household. Our combined standard deduction before marriage is $36,000. By getting married, our standard deduction as joint filers is $24,000 so we lose $12,000 of the standard deduction.”
In attempting to address the marriage penalty issue, there are a number of provisions that are easy to adjust if lawmakers so desire, Beebe suggested. “These include equalization of the Social Security base amounts between couples and individuals, EITC thresholds and standard deduction amounts. However, certain policies that reduce the marriage penalty may result in enhancing the marriage bonus, tilting the pendulum the other way. Provisions such as equalization of Social Security benefits for two- versus one-earner families, and creating incentives for low-income secondary earners with children to enter the workforce require more fundamental changes to the current system. But they are worthy goals that reflect the long-term demographic trends in the U.S. economy."
