TPC’s New Marriage Bonus and Penalty Calculator

By :: August 21st, 2012

The federal income tax is not neutral when it comes to marriage. Get married and you and your spouse may pay less to Uncle Sam. Or you may pay more. It all depends.

Whether you get a marriage bonus—your combined tax bill goes down—or suffer a marriage penalty—you pay more as a couple—depends on various factors. Who has how much income from what sources? Who incurs deductible expenses? Who can claim children as dependents? And what tax preferences might you qualify for? It’s not always obvious whether walking down the aisle will make you winners or losers at tax time.

The Tax Policy Center’s new marriage bonus and penalty calculator shows whether a couple would pay more or less income tax if they are married and file jointly, compared with staying single and filing individual tax returns. Just enter information about income and deductible expenses (including which partner has each) and whether you have children (plus who’d claim them if you weren’t married) and the calculator shows how much income tax you’d pay if you were married and how much you’d pay if you weren’t.

The calculator considers many but not all factors that affect a couple’s tax liability. For example, it includes only three tax credits (the EITC, the child credit, and the child and dependent care credit). Other credits, such as those related to education, can also lead to marriage penalties but aren’t in the calculator. And it includes only the most common itemized deductions.

Marriage bonuses and penalties have coexisted for decades. Congress created widespread bonuses in 1948 when it instituted joint filing. Before that, everyone had to file his or her own return and marriage didn’t matter (except in community property states, but that’s a whole other story).

Marriage penalties didn’t appear until the 1960s, when Congress adjusted tax brackets to mitigate what some viewed as a singles penalty—a marriage bonus viewed from a single person’s perspective. (See the CBO report on marriage and the income tax that I wrote 15 years ago; it mostly still applies today.)

More recently, the 2001 tax cuts reduced marriage penalties—and increased bonuses—by adjusting some tax brackets and the standard deduction and coordinating thresholds for phasing out certain tax preferences. That fixed most of the problem for middle-income taxpayers but high-income, dual-worker couples still face a penalty because higher tax brackets for joint filers are less than twice as wide as those for single filers.

Marriage bonuses and penalties aren’t random. One-earner couples almost always get bonuses. Spouses with similar incomes, particularly those in higher tax brackets, almost always suffer penalties. Having children can magnify both outcomes, particularly for low-income families. And same-sex couples, who cannot file joint federal tax returns regardless of their marital status, have no choice about how they file but may still benefit if joint filing would impose marriage penalties.

The calculator makes it easy to determine the tax consequences of marriage. But I have two observations for any reader tempted to use a potential marriage penalty as an excuse for not getting married. Taxes aren’t the least bit romantic and, more importantly, your mother won’t be happy.

9Comments

  1. Tax Roundup, 8/21/2012: Branstad to push income tax rate cuts? Also, tax and marriage. Plus more masterminds! « Roth & Company, P.C  ::  10:12 am on August 21st, 2012:

    […] about a ring?  The Tax Policy Center has some advice for the lovelorn with TPC’s New Marriage Bonus and Penalty Calculator!  […]

  2. Ralph H  ::  2:10 pm on August 21st, 2012:

    Yikes, better put divorce attorney on speed dial. We are paying a lot to be legal. This is something that should be corrected in next rewrite. Thanks for the eye-opener.

  3. Michael Bindner  ::  3:47 pm on August 21st, 2012:

    Of course, if most families no longer had to pay taxes and tax brackets were adjusted so the single bracket rate were half the joint rate, some of the penalty would be ameliorated. This is where such models falter, they deal fine with existing proposals but not new ones having to do with tax reform (which is where the action is).

  4. AMTbuff  ::  6:46 pm on August 21st, 2012:

    The proper way to split income and deductions is not obvious. For example, in community property states, each spouse’s earnings belong equally to both spouses. This legal reality prompted Congress to allow joint returns, to allow taxpayers in non-community property states access to the same income splitting.

    No calculator can alter the fundamental problem that the federal government cannot tax Spouse A on income which legally belongs to Spouse B.

    It is well known that no treatment of couples can simultaneously:

    a) tax equal-income households equally,
    b) maintain the same tax liability for two individuals before and after they marry, and
    c) have a progressive tax rate.

    You can satisfy any two of these three objectives, but not all three. See http://www.cnie.org/nle/crsreports/economics/econ-95.cfm#_1_2

    That’s the mathematical constraint. Community property laws add another constraint that essentially forces objective (a) to be included in the list of two that tax law will satisfy.

  5. Ian Harper, CPA » Blog Archive » In Love? Find Out If Marriage Would Mean A Tax Penalty With This Calculator  ::  11:16 am on February 14th, 2013:

    […] My TaxVox post about TPC’s original marriage bonus and penalty calculator explained why the tax code rewards some married couples and penalizes others so I won’t repeat all of that here. Instead I’ll discuss three tax provisions that will increase marriage penalties a lot in 2013 for many high-income couples. […]

  6. Mike  ::  1:32 pm on March 26th, 2013:

    Paying out of our eyes, taxes seem to be all we pay. Getting any kind of tax windfall is few an far between, but if it can be obtained through marriage that’s great. Thanks for the write up!

  7. sex  ::  7:54 pm on September 26th, 2013:

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  8. An Updated Marriage Bonus And Penalty Calculator | LamboArchie blog  ::  7:48 pm on March 6th, 2014:

    […] TaxVox post about TPC’s strange matrimony reward and chastisement calculator explained because a taxation formula rewards some married couples and penalizes others. Changes […]

  9. Robert Bley  ::  10:43 pm on March 8th, 2014:

    The facts are:
    1. The standard deduction has a marriage penalty when you turn 65 and/or go blind!
    2. When you calculate your taxes using cap. gains/qualified div. worksheet, there is a marriage penalty!
    3.When calculating social security benefits that are taxible, there is a large marriage penalty.

    Most seniors would be much better off filing as two singles!! $2200per yr!!!