If you thought you would get a tax break when you got married, think again. Unfortunately for many couples, making it official results in a marriage penalty rather than a bonus come tax time.
When two people with equal incomes marry and file jointly, they may face a tax penalty depending on the level of income. The IRS can demand as much as 12% of the pair’s income as a marriage penalty.
Why does the marriage penalty exist?
The marriage penalty exists because sometimes, two combined similar incomes will push the couple into a higher tax bracket resulting in a greater amount of personal taxes. If each spouse had filed separately, however, the combined personal taxes for each would be lower than the new amount they will pay under the higher tax bracket. This is referred to as the marriage penalty.
Changes under the Tax Cuts and Jobs Act
The marriage penalty did not disappear entirely with the Trump Administration’s Tax Cuts and Jobs Act. It did, however, pare the existing law down and simplify its terms. The marriage penalty increases the amount of personal taxes the couple must pay after marriage if they make similar amounts of money. If the couple has disparate incomes, they will receive a tax bonus instead. The bonus can reach as high as 20% of the combined income.
Before the TCJA, couples would always face higher tax penalties by filing jointly than they would have by filing separately. Now, however, the tax rate will stay the same either way unless you are a higher-earning couple. If you and your spouse are in the top two earning brackets, it may still be in your best interests to file separately. Filing separate returns could help you avoid the marriage penalty as a couple that earns $200,000 or more each.