How Marriage and the Joint Return Can Affect Your Tax Liability

Does the Tax Code Reward or Penalize Marriage?

The story is as old as time.  First comes love then comes marriage.  And quick as a rabbit after that:  the joint tax return.  Ah, sweet bliss, married only a few weeks or months and already eagerly awaiting the first refund check.  For most folks, the expectation is that married filing jointly means paying less tax and that’s real money in the pocket.

Like nearly all widely held beliefs, this one is sometimes true.  And sometimes it isn’t.  The tax code is complex and whether you believe it penalizes marriage or rewards it, you’re certain to find examples in support of your position.  So let’s work through a few here and see what’s really going on.

To start, suppose our young marrieds each earn $50,000 in 2013, have no kids, and take the married filing jointly standard deduction.  According to the Brookings Institution’s Tax Policy Center this couple will actually pay the same amount of federal tax filing jointly as they would have done had they never married and instead filed separate, single-status tax returns (about $11,858 altogether).  Hmm, no marriage penalty.  What gives?

Let’s change the hypothetical a bit.  Suppose instead that one member of our couple earns $40,000 and the other $60,000 in tax year 2013.   In this case filing as two singles would cost them $12,483 while filing jointly they still pay just the $11,858.  Not only is there no penalty, their marriage actually nets them a $625 benefit.

In fact, the higher the income earned and the greater the disparity between each spouse’s earnings, the larger this “marriage bonus” tends to be.  So if just one member of our young couple earned the entire year’s joint $100,000 income then their 2013 marriage bonus would be more than $6,600.

This increased tax savings arises from the Internal Revenue Code’s increasing marginal tax rates, i.e., from the belief that someone earning a higher income should pay a larger percentage of it in taxes.  In this last case had our big earner filed separately he would have paid a larger chunk of his income in taxes than if he earned half as much, like in the first two examples.

Stray from these straightforward cases, though, say, by having our young marrieds birth some kids, or take on a mortgage, save and invest money, suffer the catastrophe of serious illness, or any of the myriad complexities that comprise real, everyday life, and the results can vary a lot.  Year by year, our model couple will sometimes be penalized, sometimes rewarded on their joint return for their marital status.

Check out the Brookings calculator, play with various inputs, and see for yourself.

Curiously, a marriage penalty can manifest quite harshly on the poorest taxpayers.  For many years now the tax code has been used as an anti-poverty program, transferring federal and state cash to low-income households via the Earned Income Tax Credit.  The EITC is refundable, which means that any excess remaining after it offsets the taxes assessed on the return gets paid directly to the filer.  First implemented as an alternative to welfare during the Ford administration the EITC program has been expanding ever since.

But what happens when one low-income worker marries another?  At least in some cases their combined income may reduce their total credit received, or can bar them altogether from the nation’s largest anti-poverty program even though as singles they would both have qualified.  For the poorest among us that’s one heck of a hit to take.

One more important fact about signing your name on a joint return:  It makes you liable for the full amount of the tax, even for tax arising from income your spouse earned, and even if you paid your share of the tax in full.

Unless, of course, you’re an Innocent Spouse.

This article is for informational purposes only and does not constitute legal advice.  You should consult a qualified attorney before taking any action.