At What Income Level Does The Marriage Penalty Tax Kick In?

Marriage Penalty Tax In HawaiiOne of the most disappointing things about the government is their institution of the marriage penalty tax. The government is smart to laud the act of marriage in order to collect more taxes. When you’re in love, what’s an extra $1,000 or $10,000 a year in taxes you’ve got to pay? Love is blind and the government tries to take full advantage of you.

Lucky for us, we are not blind. We don’t mindlessly follow everything our politicians have to say. We question why the government suddenly allowed Roth IRA conversions during the height of the financial crisis. We think for ourselves, and that’s why the lot of us are going to be much better off than the rest.

This post will present examples of various fictitious couples with various income levels and deductions to give you an idea of how much extra you must pay the government in order to get married. All data comes from this marriage penalty tax calculator by the Tax Policy Center.

I encourage you to input your own numbers and see what happens after this post as well. Remember, please take your anger out on the government, not on me. I’m just the investigator trying to shine a bright light on this ludicrous situation. Just the fact that I had to spend loads of time figuring out various income permutations to see when the marriage penalty tax kicks in is maddening. 

Marriage Penalty Tax Example #1A

Each person makes $50,000, no children, no mortgage, no penalty. Hooray!

Marriage Penalty Tax

Marriage Penalty Tax Example #1B

Same example of $50,000 income each, mortgage, but with two children. It shows a marriage penalty, but the overall tax amount is lower due to child tax credits. From $11,638 to $7,863. So far so good. There is hope for humanity, but the government is saying you should have children as singles instead. 

Marriage Penalty Tax With Children

Marriage Penalty Tax Example #2

One person makes $100,000 and has a mortgage, another person earns $50,000. They have no children but it doesn’t matter even if they did because they are past the $110,000 combined income threshold to receive full child tax credits. A $1,050 marriage penalty is created with their union. Not egregious, but not ideal.

100-50-MPT

Marriage Penalty Tax Example #3

Each person makes $200,000. They don’t own a home, and have two children. The results are the same if they have no children. A whopping $15,162 marriage penalty tax is created for these two high income earners.

200-200-mpt

Marriage Penalty Tax Example #4

Each person makes $200,000, but this time they have $45,000 in deductions from a mortgage and property taxes. They have two children under the age of 17. The deductions drop their total tax bill down to $92,089 from $104,987 in the previous example, but if they weren’t married, their combined taxes would only be $76,825 (17% lower).

200-200-mort-mpt

Marriage Penalty Tax Example #5

One person makes $500,000, the other person makes $80,000. They own a home with a mortgage and have one child. Lucky for the person making $80,000 to marry the person making $500,000. Not so lucky financially for the $500,000 income earner. After 20 years, this person will have paid $270,000 more in taxes than if he had stayed single or not married with the added $13,434 in taxes a year.

500-80-mpt

Marriage Penalty Tax Example #6

Two people make $85,000 each and have no kids and no mortgage. It looks like $170,000 in total income is where the marriage income tax starts to kick in.

Marriage Penalty Tax Equal Incomes Table

Marriage Tax Credit Example #7

One person makes $60,000, the other person makes $40,000. There is no mortgage and zero kids. We have a winner! Because the combined income is under $110,000, the couple can decide to have a kid and claim $1,000 per child to lower their taxes even further to $10,638 from $11,638.

60-40-MPT

Marriage Tax Credit Example #8

One person makes $50,000 and marries someone making nothing. They do not have a mortgage or kids. If they were to have kids, their $3,548 tax liability would decline by $1,000 per kid. If they decide to have three kids, not only will they not have to pay any taxes, they’ll “earn” about $700 bucks from the government every year. This is a fantastic income combination.

Marriage Penalty Tax Gain

Marriage Tax Credit Example #9

Here is the beautiful scenario where one person makes $200,000 and one person makes $0. They have a couple kids (doesn’t matter), mortgage interest of $18,000, pay state taxes of $12,000, and charitable contributions of $1,000.  Why HELLO $7,330 tax credit!

Marriage Penalty Tax Credit

Marriage Tax Credit Example #10

Here is the real home-dinger. One person makes $300,000 and marries another who makes $0. They pay $35,000 in State taxes, $25,000 in mortgage interest, $2,000 in charity and have a child. The $300,000 a year earner saves $11,162 a year in taxes. I tried higher than $300,000 a year and the marriage tax credit starts to decline.

Marriage Tax Credit Huge

THE IDEAL INCOME TO AVOID THE MARRIAGE PENALTY TAX

Based on my analysis, the ideal income variations to avoid paying the marriage penalty tax are:

1) Have a total income (MAGI) below $110,000 to be able to claim $1,000 per child tax credit. You still get some child credit after $110,000, but there is a drastic phaseout. Depending on deduction levels, owning a home with a mortgage will reduce your tax bill further. It seems that a total income level hovering around $100,000 enables couples not to pay a marriage penalty tax and potentially even get a marriage tax credit.

2) One person with a MAGI $300,000 or below marries someone with $0 income. Example #8 ($50,000 + $0) is a common example that helps many middle class Americans. Example #8 shows how you can pay no taxes and actually earn money with kids. Example #9 ($200,000 + $0) and #10 ($300,000 + $0)  are also a fantastic scenario that can help those living in high cost areas. After $300,000, the marriage tax credit starts to decline.

3) Don’t have a combined income of more than $170,000 (Example 7 with $26 penalty) if two people are working, although at $150,000 total income (Example #2 has a $1,050 penalty)! Baffling. Best to just keep total income below $110,000 or have one spouse not work with total income at $300,000 or below.

The worst scenarios are when you have one high income earner marrying a low income earner or two high income earners getting married. The reason is because 1 + 1 = 1.25 or less e.g. $406,750 + $406,750 = $457,600 for the 39.6% marginal tax bracket for example. The government assumes one person in the marriage will downshift or quit their jobs. How sexist is that?

Meanwhile, in the case of a low income earner marrying a high income earner, the low income earner’s income will just get taxed at the highest marginal tax rate. For example, say you make $30,000 and marry someone making $800,000. Your $30,000 is no longer taxed at the 15% rate because it is added on to your partner’s $800,000 income to be taxed at the 39.6% rate.

STILL WANT TO GET MARRIED?

I’ve always thought the concept of marriage was a little outdated. As you can see from the examples above, it seems absurd to have to pay the government more taxes just for the opportunity of getting married. Social pressure seems like the only reason to get married nowadays. But it’s now common for a couple to have children and not be married.

The only financial reason to get married is to prevent the government from stealing from you if you die before you start collecting Social Security. Isn’t it absurd that if you die early, your Social Security benefits go back to the government and not to a designated family member? By legally marrying someone, your surviving spouse gets to at least collect your Social Security benefits when the time comes for distribution.

Yes, there is something to be said for following tradition and being a romantic. I’m sure some reading this will think, “Gawd, love is not just about money you know!”, which is true. But why do we have to pay the government to be in love? Why can’t we all be treated equally? Why is divorce the #1 killer of wealth? I wrote this post to allow people to leap into love with their eyes wide open.

Finally, if you think filing separately will help lower the tax bill, don’t be naive. The government is smarter than us all.

Related post: The Average Net Worth For The Above Average Married Couple

Readers, how much more in taxes are you willing to pay to get married? Do you think it’s fair that the government penalizes higher income earners or highly different income level earners? How many couples actually were nerdy enough to calculate their after marriage tax liability before getting married? Is it strange the tax calculator is saying that it is better to have kids and not marry? Any CPAs out there want to pitch in their 2 cents?

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

    • says

      The married filing separate gets even more tricky, as you can lose some of your credits that way. Example: I was helping a friend with his and his wife’s taxes. We ran the numbers both ways, and married filing separately they lost out on the educational credits for their dependent son in college, making their taxes even higher. Not sure why this happens…

      • says

        Because the more complicated taxes are, the more power the government has over its people. Think about all the penalties the government collects too for people who do their taxes wrong.

        If the government can charge a married couple more in taxes without having to explain why, how genius is that?

  1. says

    Wow, didn’t know that the marriage tax penalty kicked in at the $ figure. It seems like the government just wants us to keep working so that they can tax more and more out of us. Taxes + death = certainty.

  2. S says

    I’m old fashion and religious, so I see many benefits of marriage. I would not want to raise my kids outside of marriage, though I know many people do. But that wouldn’t work for me. I think marriage is a net positive institution for society.

    To answer your questions:

    1. Yes I am willing to pay more in taxes to be married because the benefits of marriage (for me) far outweigh the marriage penalty.

    2. I’m of the opinion that the tax code should not penalize married couples, nor should be in the marriage encouragement business (even though I am a supporter of the institution). It should be neutral on it so that people can organize their lives however they want without having to think of tax consequences.

    3. I roughly calculated the tax differences of being married though it had no effect. I was just curious. But with tax estimation software out there (turbo tax caster is a good one), I am always playing around with different scenarios (wife working, not working, # of kids, increased home mortgage, etc), so I guess I am nerdy about that.

    So I disagree with you that marriage is outdated (a different discussion for a different day), but I do think the tax code should be relatively neutral when it comes to single/married, income levels, etc.

    3.

    3.

    • says

      Hi S,

      Can you highlight exactly what the benefits of marriage are for you that far outweighs the marriage penalty tax? Why do you think two people can’t just be in love and have a family without being married?

      Thanks

      • S says

        In a nutshell, knowing that we have committed our lives together in a sacramental covenant (as I said I am religious). That works for me. I think two people can just be in love and have a family without being married. If that works for them, great. I think it is much easier to walk away, but two people don’t have to. And certainly just being married doesn’t keep two people together. There are tangible, legal benefits to being married – just as there are certain tangible, legal benefits to not marrying. The intangible benefits are the reason I married.

        Anyway, those benefits to me far outweigh the tax penalty. Obviously, at some point the penalty may outweigh those benefits (if only married people were tax to take it to an extreme).

        • says

          Thanks for sharing. With a divorce rate of 50%, I’m not so sure marriage helps keep people more together. Maybe it does, but the numbers don’t look pretty.

          A senior government official once told me that the government uses religion to also get people to pay more taxes through the promotion of marriage. Furthermore, we all know that the Churches are some of the wealthiest institutions on Earth.

          I hope our country can accept all religions and people.

  3. S says

    A follow up, when it comes to love and marriage and finances, it is not the marriage penalty that will kill you financially. Its the divorce. That is a wealth killer. So if you marry, make sure you marry right and don’t screw it up.

    • Chris Minasian says

      SOOO true!!!! Seeing it all around us… couples don’t want to split their assets and it gets ugly- fast!

      • Jon says

        If you get married just make sure to put all your money into a non revokable trust at least 12 months prior to marriage or make them sign a prenup and or both! You might love them at the beginning but at the end make sure you do everything in your power to ensure they don’t get a penny of your hard earned money!

        I sound like an asshole but it’s just business!

  4. says

    Very interesting…I’ve always wondered about the effect of the marriage penalty. My wife and I are under the $110,000 for now, but at some point in the future we might be over. I guess we better get a mortgage to get the deduction. The whole tax system is so convoluted and complex. As for social security, I don’t think it’s absurd that if a person dies early, the “benefits go back to the government.” It’s social security insurance and not a retirement savings account. If the benefits for paid to a beneficiary, I think they’d be bankrupt now. In any case, if a person dies early, the widow(er) and minor child will still collect benefits…and the widow(er) will have increased benefits.

    • says

      “In any case” is wrong. If you are not married, the widower does not get Social Security.

      The government probably would be bankrupt if SS didn’t get passed down to a close family member. But we are paying into the system in the form of 7.35% in taxes up to around $115,000. That is $8,000 a year in taxes to pay for your whole life to get nothing in return if you die before age 64 and so happen to be single? That’s not right.

      • Kurt says

        “That is $8,000 a year in taxes to pay for your whole life to get nothing in return if you die before age 64 and so happen to be single? That’s not right.”

        No, that’s called a pension.

          • Kurt says

            No, I mean that is the literal definition of a pension. The price of fixed income for life is forfeiture if the actuarial tables don’t go your way. I understand the impulse to hate the method of funding (taxes), but there is nothing unfair about the product itself.

            • Kurt says

              The best thing about being the gov’t in that situation is that you can rewrite the rules if you don’t like the math – as many city/county/state pensioners are realizing as they face potential pension cramdowns.

              Lifetime income is compelling, but at the current low rate regime is too expensive. Better, I think, to have the 401k and then protect against longevity risk by laddering into annuities starting in the late 60s or early 70s. Of course, that assumes you’ve not blown a hole in your 401k by then.

            • says

              I’ve never really explored annuities beyond a basic sales pitch with my insurance co.

              Care to expand on their merits in a post or here in the comments? Sounds like you are doing well with them.

              Any strategy to consider?

            • Kurt says

              I don’t own annuities and won’t for many decades, if ever. I am familiar with annuities because I’m paid to be (I work as a corporate 401k and pension plan sponsor). To anyone reading this, I’d say to follow the advice of Warren Buffett and only own what you know. That includes annuities. Salesmen love to sell annuities because they (can) garner huge fees and come in so many flavors (fixed, variable, indexed, deferred, with death benefits or without). In the face of this, most consumers suffer from such an information disadvantage that my blanket advice would be to stay away (especially variable and indexed annuities, whose fee structures are often so opaque that you may as well just assume you’re getting ripped off).

              The annuity example I used above was for a plain vanilla (inarguably the best flavor) annuity called a single premium immediate annuity (SPIA). Laddering them – or buying another SPIA every 3-5 years – is a way to protect against interest rate risk (e.g., annuity prices are expensive now because of the persistently low interest rates, but maybe in 5 years they will be more normal and annuities will present a better value). Everything has caveats of course: http://www.forbes.com/sites/rickferri/2012/09/04/immediate-annuities-arent-for-everyone/

  5. Lucas says

    Couple issues on your examples

    All the examples with kids are not accurate because you are double counting the child exemptions. If person one and two really got married they would have 4 child exemptions not 2 if you were combining exemptions as you are combining everything else in their example. maybe it would be fairer to give one person 2 kids and one of them none like most real custody sharing arrangements, or just give each person one kid.

    Example 3 – child tax credit doesn’t end of 110,000 MAGI, it just starts to get phased out at an additional 5% tax rate (over the next $20000), so they technically would still be eligible for some child tax credit. This is also assuming their don’t save any in 401k or HSA which both reduce MAGI and can help keep eligibility for the child tax credit (might be worth an add in the conclusion section).

    Might be worth an example of a higher income earner say 200k marrying someone who plans to stay at home (or not earn anything). This is one of the better marriage bonus scenarios – close to $6k by my calculations.

    Important to point out that taxes are actually lower for most married people (besides high income dual earners). But even if taxes are a bit higher for some people, being married decreases a lot of other expenses due less duplication. Of course it sounds like you are trying to make the case for cohabiting vs getting married in that case. Now you are in the rhelm of morals vs just straight expense calculations.

    • says

      Thank you Lucas! This tax calculator was baffling as hell to figure out when kids started getting added into the mix. I played around with the inputs to provide as many variations as possible until the calculator and outputs really started to piss me off.

      Great point about the phaseout over 110,000 MAGI. I didn’t want to introduce the 401k and HSA variables to reduce MAGI because then you would see way too many more permutations. I should have just made every couple childless to make it easier, but that is obviously not realistic.

      I’ve included another example #9 of 200K marrying someone making 0 just for you and we get a $7,330 marriage tax credit, which is fantastic! Example #9 is a juiced up version of example #8, and buttresses my point #3 of the ideal income combo.

      What do you think is the total income limit MAGI for when the marriage penalty tax starts kicking in?

      • Lucas says

        The reason it is so difficult to peg a MAGI where dual income earners get hit with a marriage penalty is that that level is actually a permutation of the tax brackets the two earners are in, plus where phase outs are on tax credits, and how much they contribute to a 401k or other MAGI reducing vehicles (which is why examples like you did are going to be more useful then trying to control all variables at once)

        1) There is never any penalty if one spouse was not planing on working. So if you plan on having one spouse stay home with or without kids, there is no penalty. You get a bonus from this up to income of 405000 when the tax brackets fully converge. So you early retirement is your goal then you should definitely be married by the time you retire to max your marriage bonus ;-) I know you have a different view off this, but with 3 kids i can “earn” 57500 gross and pay 0% tax (which is quite a lot to live on if you have no debt). which makes tax deferred accounts like 401ks substantially better deal then ROTHs for my plan.

        2) For dual income earners- If you are below 73801 MAGI (94000 gross income) it is clear there is no penalty because tax brackets are doubled up to that point. Between there and MAGI of 148850 (169050 gross income) the penalty is usually pretty minimal due to the brackets being pretty close. Beyond that it definitely racks up quicker after that due to the non doubled brackets and credits phaseout limits.

  6. says

    The funny thing is, you’d think we would want to encourage high income earners to have more kids.

    This is going to sound “elitist” no matter how it is written but it just doesn’t make sense to give a penalty to high income earning couples.

    If you give a tax benefit to wealthy people for having kids, more likely than not the kids they have will 1) have more education, 2) be better prepared to add value to society. This does not mean that “all rich people are smarter” rather it means “rich people can provide their children with better resources to succeed”.

    A very different argument.

    Marriage in the USA really makes no sense. A couple of good friends are “married” but not legally.

    They had their wedding and ceremony yet no papers were signed. Why?

    Two reasons:
    1) the taxes will be lower as outlined here
    2) the higher income earner realized giving the government control of his assets is basically a 99% negative gamble on the court system (he knows he will lose). His wife is no slouch either clearing ~$200K. But why would they pay extra tax to the government?

    Marriage makes no sense in the USA anymore. If the girl loves you she doesn’t need a contract. A ring a ceremony and her friends and family should be enough.

    Government/court involvement is just adding complexity. The system doesn’t even have the correct reward system.

    Do we want kids to grow up with a higher probability to succeed or a lower one? And yet there is a higher tax on those that can provide better opportunities for their kids.

    Blasphemy.

    • says

      I wouldn’t say that marriage makes no sense in the USA anymore. It’s very much so specific to the individual situation. There are pros and cons, even outside of religious, moral, or tax reasons.

      For example, there is a 20 year age gap between my boyfriend and I. He has worked hard for a very long time, has a nice pension, and would like to retire in the next 5-10 years to pursue other dreams. I don’t NEED the piece of paper (i.e. marriage). However, the more we discuss the future, the more it seems ideal that I retire when he does; We have similar dreams, he wants me available to follow those dreams, and not working a “normal job” would give me that flexibility. Basically, he doesn’t wait until he’s in his 80’s for me to retire and us follow our dreams. In this case, I don’t want him to retire unless we are married. Why? Because if I retire at 40 or 45, I won’t have a significant amount in my own retirement accounts. If he retires single, his pension won’t pay a survivor benefit (aside from a small death benefit). If we’re married when he retires, there’s a survivor benefit that would pay until I die. He has to be married WHEN he retires for the survivor benefit to come in to play; if he gets married after retirement, the benefit is not available. Who knows, I could die first, and all this could be moot. But if he dies at 85, I don’t want to be 65, with no real income, trying to start over.

      It does take all the romance out of marriage though when it comes down to money!

      • says

        Those are some good, real thoughts that I’m sure others are thinking about. It’s a shame that the survivor benefits don’t go to a loved one, and must either go to the spouse or back to the government. That does NOT seem right to me. If you are paying into the system all those years, it’s yours or who you designate it to be darn it. To me, this is TYRANNY because if you don’t pay these taxes, you get fined or go to jail.

    • S says

      I would agree that the reward system is somewhat out of whack. As I have said, I think marriage is a net-positive for society. But the divorce laws of the past 50 years have had an affect – some good, some bad. If 50% of marriages end in divorce (a statistic that may be questionable), that still means 50% of marriages do not end in divorce. Would we be better off as a society without marriages at all as a stabilizing force? Maybe, maybe not. I tend to think not, but I certainly come to that conclusion from my own personal bias.

      I think this much is true. If you are only interested in building wealth, then find a partner who makes a lot of money but would allow you to split costs and do not have kids. I’m not sure how long such a relationship would really last for most people, but it would allow you to build the most wealth.

      Most (not all) want more than that. I wanted kids, but not just for the sake of having kids. I wanted kids within a marriage. I saved a lot more money before the kids and marriage. There is no doubt I would be wealthier financially without them.

      But assuming you do want marriage and will accept how many kids come your way, then the best way to build and keep your wealth is to find the right person to marry and then do not get divorced.

      In my ideal world, the tax code would incentive all the things I want incentive because I think they are good for society. Alas, we don’t live in my ideal world, and the tax code incentives things that I think should not be incentive or penalizes activities I think should not be penalized. The reward system is all screwed up for my liking.

      So I would just prefer a neutral system that treated everyone equally. Let them arrange their affairs, finances, personal relationships, investments however they see fit. Society will sort itself out in the most efficient manner – just like any other complex system. We don’t need the tax code to manipulate it.

      • says

        I much prefer a neutral system as well. Why should the gov’t try to persuade our personal lives? That’s not right. Why are we penalizing dual income earners too?

        Perhaps marriage is a “stabilizing factor” in society. But are we really that savage as to not have the ability to cohabitate with the ones we love and be stable as well? I’d argue divorce is extremely DISRUPTIVE, hence those who never get divorced in the first place can be considered much more stable.

        • Lucas says

          Thought about this for a while before coming back to post. I think you are missing the point that True Love is actually an action/choice of putting someone else before yourself, not a feeling. If you can not make a commitment to someone to go through the rest of your life with them regardless of the consequences to you then I would argue that you don’t really love them. Love grows under that level of commitment, especially during difficult situations. Failure to understand that aspect of what true love is, is a failure to understand reality as it is an unchangeable fact.

          Cohabiting is at its core a decision that I like this other person and what I get out of this relationship, but if things ever got really bad then I still want the option to leave.

          Arguing that you could commit under a cohabiting relationship without getting married because you want to avoid the current tax consequence of getting married, proves that you don’t love the person regardless of the personal consequences (that will come and go with time/tax policies/etc. . ).

          I would argue the 50% divorce rate is a product of people (religious or not) totally missing the point of marriage and/or one of the partners never really having made the choice to love the other one.

          • says

            These are interesting judgements you have about people who don’t get married and who get divorced. If you said this to people, I’m pretty sure you will get huge backlash from millions of people.

            Instead of judging other people, how about just sharing your relationship situation?

            • Lucas says

              You should know as well as I do that just because something is offensive doesn’t mean it isn’t the truth. Most times the truth is very offensive to many people. Personal finances are very much this way as well (lots of people who are making terrible self destructive choices that would be very offended if this was pointed out). So you are correct that what i expressed is very offensive to many people. However I am expressing what I believe is the truth about reality. So by the dictionary definition of judgement: “the forming of an opinion, estimate, notion, or conclusion, as from circumstances presented to the mind”, i am making a judgement. If I am wrong, I desire to know and better understand reality. If my understanding of reality is correct however, then it is actually the loving thing to do to help people understand this instead of letting them continue in their current path, causing themselves and others more harm. Of course there are different ways of doing this with varying effectiveness depending on the person.

              My guess is that you believe that truth or at least morality is relative, so you probably won’t agree or possibly understand my perspective (which has nothing to do with trying to make myself feel superior as I am very acquainted with my own failings and selfishness). I will point out that the inherent contradiction in that world view is that all truth is relative except the fact that truth is relative which is absolute (which is impossible if all truth is relative, forming a completely illogical basis).

              For your reference I have been married to my wife for 8 years and we have 3 children (6,4,2) together. I would be love to hear your perspective on why you think reality/morality is different, or explain more of what I understand it to be if you were interested. But this thread probably isn’t the best forum. Feel free to email me if you would like to.

          • says

            I happened to be researching this exact topic for a post I was writing today: http://hereverycentcounts.com/2014/09/marriage-tax-penalty-is-it-real.html

            The comments here are fascinating! I think marriage is a huge scam… but it’s hard to not get married in our society. I have a boyfriend, we’ve been together 8 years- and we”re going to be together for the rest of our lives and have children (hopefully) and all that – so why pay more for tax just because we want the government to approve our marriage?

            Yes there is some truth to the argument that legal marriage makes some couples stay together longer and stick it through hard times – because it’s just too complicated to get a divorce – but that doesn’t mean two people cannot force themselves into that mindset in a relationship that is a marriage for all purposes except on the legal paper. I think it’s very sad that the reason people get married — and pay more for it — is because they cannot be mature enough to remain together in sickness and health, richer or poorer. I’m very torn about this because I just expected to get married as an adult if I found my life partner and I indeed found him, but now that I know how the government will just charge us more to be married I don’t see the point (except the SS bit, but if we’re both working and making six figures then I think I still wlll do ok when I retire.)

            The only reason I see to get legally married is if one of us decides to stay home with kids one day… but we can always get married THEN… and save some cash in the meantime. Right?

    • says

      It is a head scratcher for the government to PROMOTE lower income families for having more kids with the child tax credit. You’d think it would be the opposite if kids are really tat expensive, and to grant a child tax PENALTY no?

      If you make under $50,000 and have 5 kids, for example, it might really be hard to get ahead financially.

      • Bren says

        The government promotes lower income childbearing because they need more workers. You keep your working class numbers high but you keep their spirits controlled by religion and television and their social power low in order to maximize the output and profit. You don’t want the upper levels creating revolutionaries with actual monetary power; you need them to concentrate on business as usual.

  7. says

    We weren’t willing to pay any taxes, so as you know, we moved ;) Actually, we ended up eloping (but will have a formal wedding coming up soon) because that way if I wasn’t able to find a job in our new country I could be listed as a dependent on my wife’s (er, fiance’s?) work permit.

    I’ll try my hardest not to go on a rant about the government and taxes here, but it really is an archaic system that seems to have been pieced together by a bunch of blind ferrets, each with different objectives. Talk with people in/from other countries and they find it absurd that the need for personal tax planners exists for the average citizen.

    And while I may be a CPA, I avoid taxes like the plague, which is probably not what people want to hear haha. Of course, I use my designation for a different line of work than say, being an employee at H&R block.

  8. says

    Nice post Sam, I think marriage penalty is the worst when you have a high and a low income earner since the low income earner is really being taxed at the marginal tax rate too!

    Right now, my fiancee is in med school so we’ll get 4 years of a nice marriage bonus. After residency though, we’ll have a huge penalty. But that’s why I’m starting my own businesses right now(rental, online, etc) so that I can deduct expenses against my small business income and then contribute the rest to a solo 401k. As long as I don’t make much more than 50k should be able to tax shelter all of it :)

  9. Steve says

    Hey FinSam — Do you REALLY think that in the SF Bay Area, 250K is the perfect income — even for a married couple with child? Oh, I get the tax thing. (No really, you need to know that I GET IT…). But is there an adjustment for super expensive metros like SF and NYC? Thanks! And BTW, the benefits of being married outweigh the tax penalty, although my wife might feel differently, particularly when she is the sole wage earner — nyuk nyuk nyuk.

    • says

      Don’t ever let your wife stop working! We stay at home men must UNITE!

      I think $250,000 is pretty ideal for a couple or family of three. For a family of four, $400,000 – $500,000 could be good.

      How do you get away with not doing anything for money as a man Steve? Share us your secret! What does your wife due?

  10. Kurt says

    Great post showing how differences in single vs. married tax brackets can really muddy the waters come tax time. I think everyone should do a before/after analysis when they think about getting married, if only for the clear-eyed knowledge that the couple will gain about their finances – an topic that can be such a challenge in many marriages.

    My wife and I were each in the 180k range when we got married late in the tax year, and I (somewhat jokingly) suggested we delay until the new year so that we would save 11k in taxes….she was not amused.

    However, I can’t disagree more when you say that the only financial benefit to marriage is SS survivor benefits. What about estate tax advantages, health care advantages, auto and home insurance advantages, home ownership and home capital gains tax advantages? Granted, some of those direct financial benefits are only available given certain circumstances, but what about the broader benefit of income security? There is clearly a marriage penalty if you look solely at federal income taxes, but I would argue that there are broader financial advantages to be had from marriage, irrespective of the emotional component.

    • says

      I have a feeling that many women are not going to be amused! :)

      It is so curious why the government would want to penalize higher income earners from having kids or getting married. Why deny love? Love is all around and should be free.

      • Kurt says

        I disagree that gov’t wants to penalize high income married couples. If they did, why then have all the other tax advantages I listed (most of which are only meaningful to wealthier families): estate tax advantages, gift tax advantages, home ownership and capital gains advantages. If they wanted to penalize marriage, why then include the Social Security survivor benefit you referenced? The way I see it, the marriage penalty is the govt’s way to recoup the costs of these other tax benefits.

        To me, the marriage penalty and related tax machinations seems to largely reward “traditional” 1950s style living (single-income, stay-at-home spouse, two kids and a mortgage). IMO, this speaks more to the need for an overhaul and simplification of the tax code with fewer special incentives than to any pernicious plot to pilfer the public’s (p)money.

      • says

        Hey I’m a woman and I’m totally on board with avoiding marriage to reduce taxes! Without kids or an intention to have them, I don’t see much point in legal marriage.

      • Practical Patty says

        Another sensible woman here who sees the financial advantages of not being legally married. Fortunately, my partner is another like minded practical man who shares the common goal of early retirement. We are both high earners with no kids. In our first year of dating, during a vacation, we heard a podcast that mentioned the marriage penalty and a quick back of the envelope calc indicated that we were saving enough to go on a great vacation every year and still have $ left over. That was enough to convince us. We both love each other and don’t need a marriage certificate to confirm our commitment to one another. So the savings pile up… I don’t feel the need for a shiny bauble on my finger nor a wedding and the associated costs. That money has been happily growing in investments and helps us knock some time off until retirement. We have been wondering though, if there are situations where we might want to get married in the future though for financial advantage. Capital gains exemption on the sale of a property certainly seems like one situation. What about just before drawing social security? We also want to make sure we have the proper legal protections in place for medical decisions and our combined assets. We live in the Castro in SF and have said that we should find a lawyer in the neighborhood that had helped same sex couples with these same issues before they had the right to marry. Funny that we are exercising our right to not marry.

  11. Cece says

    My husband and I are 24 yrs old each. We both recently landed our first ‘real’ jobs out of college. We have both worked very hard throughout college( I had three separate jobs at one point) and graduated with zero debt.
    We would be paying less in taxes now if we had debt. We feel like we have been penalized for our financial planning and responsibility during college. It saddens me to say that government is not just penalizing marital commitment but commitment and responsibility of any sorts. They seem to be rewarding people who seem to make poor decisions( married or not, having kids despite low income seems irresponsible to me).

    • Jenna says

      Don’t forget you are still better off to not be paying the interest on the debt…the tax benefit only makes the interest lower by your marginal tax bracket…so if you paid 1000 in interest and got a 250 tax benefit (assuming 25% marginal bracket) you still paid 750 in interest…versus you not paying any interest.

      Congrats on getting through school with no debt, you are far ahead even with no tax benefit.

      • says

        Just think though. Instead of paying $15,000 a year during a 30 year marriage while working, one could save $15,000 a year, and therefore $450,000 during the same time.

        Think how much a couple could buy with $450,000 in today’s dollars. Wow.

        • says

          I am not sure how they would save $15K.

          Two high (80k+) people that are married will pay more than if they were single. If one was earning not much, then they may save, but if it doesn’t work, watch out. Alimony is a tough one with a low earner. In many states, it goes on until death or re-marriage.

        • Ace says

          Sam,

          With all due respect, it’s very hard to feel sympathetic about people with a $400,000plus household income whining about taxes. $15,000 is not exactly a life changing amount for this couple (that doesn’t mean I consider it fair).

          The larger and more likely cost is the impending divorce after about seven years of marriage. That is “lifestyle alternating”!

          • says

            $450,000 is $450,000 Ace! Can’t poop on that!

            I could bath myself in Evian water, feed a village for a year, and buy my parents a new home for that type of money.

            The government is just going to waste it.

            • Ace says

              Well sure….. The government will waste, but so does private industry, and private individuals.

              On the other hand, you would not be wealthy if it wasn’t for the stable economic environment provided by the US Government policies. And you receive numerous government tax breaks for your real estate and business ventures. The list of government provided services is way too long to list, but runs from public school education to roads and air traffic control. You benefit from these.

              You also benefit from the fact that San Francisco will not likely be invaded by any foreign army because of the very expensive but world dominating U.S. Defense Department.

            • Ace says

              Well…. Yes I do pay considerable amount of tax including self-employment tax, LLC fee, etc. And I do use tax saving strategies, but I’m not anti-government.

              As a small business person, I recognize the considerable value government entities provide me, although I do frequently disagree with specific issues (well, alright, sometimes many specific issues! LOL!).

              I enjoy clean drinking water and breathable air! Regulations and code are a nuisance, but, they are written in “blood”. There are reasons for why things are done the way they are. These reasons need to be understood before changes are made.

            • Ace says

              I like the link to that poor guy in California! LOL! California is quite a bit more challenging tax wise (I know from personal experience). But, it has a large population with wealth (at least real estate wealth), so there are many customers to sell too. The property tax issues are really complicated out there.

              I’m much happier in Illinois. I pay my $250 LLC fee and file my sales tax return and life is good. Not that complicated.

              I probably would never consider basing a business out of California unless it was extremely profitable (or potentially extremely profitable). If you are interested in experimenting with different small business ideas; I think it would be best to base in a different state.

          • moshennik says

            Once you start making 400k you will whine about taxes too. We are right in that range.. maybe 450k this year. Our taxes will end up being about 180k total (including state and payroll tax). It’s exceptionally painful. To think how many toys I could buy with these money.. instead it’s wasted on moochers and wars :(.

            • says

              Thank you sir for supporting our country! And also allowing folks to live more comfortable lives.

              All I ever wanted when I was paying such taxes was a “thank you” not a vilification. So, thank you!

            • moshennik says

              Yep, and that’s what I am doing this year. I have started to refuse work.. as it’s not worth it for me to put in more hours, considering i get to keep under 50cents on a marginal dollar i earn.

            • Ace says

              Bingo!

              And you’ll be happier and less stressed too! Time is more valuable then money.

            • moshennik says

              Or.. could be even better. We could stage our firings at work.. get unemployment, section 8 housing, food stamps, 20 more social programs..
              Have a LOT more time, totally stress free life.. let some other sucker pay for it:)

            • Ace says

              Honestly though…. It’s really stressful to be unemployed and poor. The psychological damage which the lower class lives with is very real. The human suffering is very real.

              It is so much better to be worried about tax saving strategies!

  12. says

    Well, I ran my numbers through the calculator and found out that my marriage bonus was 3.7% as I figured it would be pretty decent due to single income below $110k and SAHW with 4 kids.
    Kind of a perfect storm almost.
    Just for giggles, I reduced it by putting away the max 401k (both including and not including the $5,500 for catch-up contributions). Not surprisingly to me, the marriage bonus went all the way down to 1.2%.
    In all honesty, these types of calculations just keep pushing me to maxing Roth IRAs for me and DW and putting 401k back to company match.

      • says

        Alas, I wouldn’t suggest doing it if you are faint of heart. At times it can be downright scary … even more so than being married with dual incomes and less kids.

        With that being said, I believe that the 401k pre-tax savings will become very effective when we start loosing the huge tax deductions for the kiddos.

  13. says

    I have jokingly proposed to my lovely wife that we get a divorce of convenience to pocket a couple thousand dollars of that marriage penalty we are paying! She always gives me this look that’s hard to describe. She won’t take me up on the offer, which might be a good thing. Such is the cost of love!

    You should rework this article a little and re-release it around Feb 10 next year. Just in time for Valentine’s day! Ha ha

  14. says

    Wow fascinating examples! I despise the marriage penalty bc it clearly shows how the government is stuck in the past. Sadly I doubt they will ever get rid of it. They have so many inefficiencies they’re not going to change anything. When was the last time a front running nominee was campaigning to get rid of the marriage tax? I can’t think of one.

    • says

      I can’t think of one either. Maybe if Hilary became president, she would would fight more for equality and simplicity.

      The marriage penalty tax encourages one spouse to stay home and make $0, and it encourages one person with a much higher income to never marry. I’m very disappointed with the government’s treatment of people. They should NOT mettle in the personal lives of others.

  15. says

    Can I just tell you how thankful I am right now for this post (or more importantly, the comments)! I’ve spent a lot of time recently considering the financial implications of my relationship: Pensions, savings, taxes, incomes, inheritances, social security… When/whether/how you marry can have a huge impact on your financial life! Relationships are supposed to be all about love and dreams, and looking at the financial aspect makes it start to seem cold and calculated. Finances aren’t going to be the deciding factor in my relationship, but I’m glad to see I’m not the only one taking it all into consideration!

    • says

      No, no, more importantly is the post! Because I spent hours wracking my brains putting this post together, trying to understand all the nuances of the tax implications, etc. Without this post, there would be no comments! :)

      I like the fact that one can make up to $200,000 and marry someone she or he loves making $0 to save on taxes. That’s the one positive takeaway. It’s great if one spouse doesn’t have to work.

  16. says

    As your income goes up, you should spend more time finding ways to reduce your taxes. I see the progressive tax system as motivation to find ways to lower your taxes. If you go out and start a business you can lower your taxes. Use the marriage penalty as an incentive to start a business or invest in income property.

    • MD says

      Small business owners get taxed the most though. You have to pay both sides of SS and Medicare. Also, because you are already in a high bracket (in your scenario), then all the added income gets taxed at the higher rate for income tax purposes. Unless, the goal is to have losses flow through from an accounting basis even though you are making money in reality. However, that strategy has a shelf life and once that is done, you are paying through the nose.

      If they have a targeted tax break to small businesses, this economy would fly.

      • says

        Agree with you here 100% MD. The red tape a small business has to jump through and the multiple fees and taxes a small business owner has to pay makes people NOT want to start small businesses here in California at least.

      • says

        You’re right on one hand, but I can also choose to invest in my business. I don’t like controls or regulation, but those are legitimate tax deductible expenses and so are the accounting/legal expenses to reduce my taxes. As a business person, I have a lot more latitude to make those decisions. Yes it reduces my profit, but I can use every other tax provision to my advantage too. For example, I deferred taxes when I used a 1031 exchange for my income property.

    • Ace says

      Krantcents- This is a wonderful strategy. I highly recommend this for married couples whenever possible. Having one spouse working full time at a fairly good paying occupation with solid benefits (health insurance, etc.) and the other spouse running a small business. From financial/economic/tax/family flexibility point of view; this is the optimum.

  17. MD says

    Sam,

    Wow. My wife is a tax accountant and 2 nights ago she told me we would be much better off not being married from a tax perspective. Basically, she ran through scenario 3 for me. However, we have been married for 20 years and love each other. What are you going to do?

    I did know someone in the 90’s who got a divorce because they wanted to sell a property that had a huge gain. I cannot recall the details though.

    • says

      That is weird someone in their 90s wanted to divorce due to selling a property. You can earn $500K tax free as a married couple vs. $250K as a single.

      Glad your wife and I are on the same page! But what’s $300,000 more in taxes over 20 years if you are in love, right? A Bentley… 10 round-the-world cruises… 600 RT flights to Hawaii…. tuition for two kids to private university for all four years.

      All is good when you are in love!

  18. says

    With a joint taxable income around $300k, I see no reason for my boyfriend and I to get married. We would pay an extra $5-6k+/year in taxes. Someone above said that we would hardly notice that money gone, but that doesn’t mean we couldn’t put it to better use than paying taxes. Even if we don’t spend it ourselves, we could use it to donate more money to causes we believe in. Or as we put it, go to Europe multiple times a year. We didn’t ask to make this much money.

  19. Whoanelly says

    This post is fantastic. I’ve always wanted to know where the sweet spot was and you did a nice job showing the breakdown. We fall in category #5 except we have 2 kids and I was always peeved when I saw my paycheck and how married filing jointly hurt my income (by about $6000 per year).

    So to be clear, the $13k marriage tax hit you calculated in scenario #5 does or does not include the hit to the lower income earner? Not understanding how the higher earner is “not so lucky financially” when the lower earner is getting hit harder (percentage wise)!

    • says

      Congrats for being in #5 in terms of income.

      The way I see if, if the high income earner never married the low income earner, they’d have $13,000+ more a year in example #5. Is that you? I hope s/he is worth it!

      For the low income earner, all is good cause s/he is living a better life than if s/he was single at $80,000.

  20. says

    Awesome analysis! Had no idea that the tax situation would change so dramatically in those different situations between being married and being single. Think we’ll see more high earners choose to remain single?!? What if you live together long term?

  21. Anna says

    The scary part is how comparatively low the individual incomes have to be in order to be hit with the marriage penalty. One of the reasons me and my partner decided not to get married after we had a child is the realization that we would have to pay 10k extra in federal taxes for the privilege to be married. In the last 3 years we have saved $28k, and that is the years we counted the difference, I am sure the actual number is larger if we counted all the way back to when we moved in together.

    • says

      The more the government can punish, the more the government can control people to do their bidding.

      Glad you are saving $28,000 after 3 years and doing what you want to do. Don’t let the gov’t keep you down!

  22. david says

    love this post. Ive been preaching about the marriage penalty for years and it is the very reason my “partner” and I decided NOT to get married. most people have no idea that a significantly increased tax burden awaits them after marriage.

    When you ran your scenarios for people who have kids did you include the ability to file head of household? My partner and I make ~$220K/year combined and I file her as head of household which reduces her effective rate to ~6-7%.

  23. says

    Wow what an eye opener. I’ve heard about the marriage penalty but never seen it laid out like this. We’re thankfully currently in the category of one person earning a lot and the other earning nothing (my wife is staying home to take care of our son). Still able to get the full child credit because of 401k and HSA contributions. I hope we can maintain this ideal situation as it’s working out great for the family.

    • says

      Crazy for many huh? You are in a sweet spot with your marriage situation. Congrats! Now help make everyone feel like they are benefitting financially too by spreading the world about this inequality. Thanks!

  24. jclimber99 says

    Ran the calculator at $110K and $74K incomes (so $184K combined), no kids, $20K itemized deductions. Difference was only -$171. Not enough to lose sleep about.

  25. says

    Love this post! I was just writing a blog post on this exact topic (http://hereverycentcounts.com/2014/09/marriage-tax-penalty-is-it-real.html) because I’m of age to get married and now don’t want to!

    I want to have kids, a husband (I’m already living with my partner of 8+ years and we are going to aim to have our first kid in 2016/2017) and a stable life… just marriage seems so antiquated, silly, and costly!

    If I got married I definitely would be more interested in being a stay-at-home mother but that would be such a waste — I’m going to work and as my salary with bonus at 30 has ranged between $120k and $150k I can only imagine I will earn that or more throughout the next 30 years. Even if I consult and half that when I have young kids I’ll still make too much to see any benefit from marriage (I’m assuming my partner will make at least $50k per year if he goes the social services route he’s thinking about… he currently makes $90k.)

    I brought up the idea of NOT getting married to him today and he seems really sad about it. His parents were never married so I know it’s important to him, but I’m hoping the numbers speak louder than feelings. We can still have a ceremony and discuss our lifetime love for each other… and then pay for that ceremony and then some with the tax savings from not getting married!

    I’m still not sure… but I can’t find a good reason to actually go through with legit marriage if we both plan to keep working.

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