The marriage penalty in the United States refers to the higher taxes required from some married couples, where spouses are making approximately the same taxable income, filing one tax return ("married filing jointly") than for the same two people filing two separate tax returns if they were unmarried (i.e., filing as "single", not "married filing separately"). The percentage of couples affected has varied over the years, depending on shifts in tax rates.
The source of this increase in taxes has its roots in the progressive tax-rate structure in income-tax laws – that is, the earner of a higher income pays a higher rate of tax on the last dollar of income. It is mathematically impossible for an income tax system to have all three of these features simultaneously: joint filing for married couples; marginal tax rates that increase with income; and independence of a couple's tax bill from their marital status. With increasing marginal tax rates, income averaging is advantageous to the taxpayer.
For example, if two persons, one making $80,000 and the other making $20,000 in a particular year, can file as if they have equal $50,000 incomes, they will pay a lower combined tax than they would if they paid tax on their own income. So if the married-filing-jointly tax rate schedule is designed to give a tax bill the same as would occur if the couple's incomes were equal to the members' average and if they were single, they will have an advantage in being married.
In the United States before 1969, income averaging (the married filing jointly status) was advantageous to a married couple with different incomes. To compensate for that somewhat, starting in 1969 the U.S. adopted a higher set of tax brackets for the averaged income of a married couple. Under the revised tax brackets, while income averaging might still benefit a married couple with a stay-at-home spouse (with incomes so far apart that the tax saving from income averaging outweighed the higher tax brackets), a married couple with roughly equal personal incomes would pay more total tax than they would as two single persons.
Origin and actions to eliminate
In 1996, 42% of married taxpayers paid more because they were filing jointly than they would have if they had remained single according to a 1997 Congressional Budget Office (CBO) analysis. The average penalty among these couples was $1,380. Conversely, the same CBO analysis concluded that 51% of married couples paid less tax jointly than if they had not been married, with average savings of $1,300. The reason that one couple would receive a benefit while another would receive a penalty lay in whether the couple's individual incomes were disparate (resulting in a benefit) or roughly equal (resulting in a penalty).
Since then, several pieces of legislation have been passed to do away with the penalties further. For example, the Economic Growth and Tax Relief Reconciliation Act of 2001 introduced section 1(f)(8) to the Internal Revenue Code, which mitigates the marriage penalty effect in the lower tax brackets. Section 1(f)(8) adjusts the ceiling of the 15% tax bracket for joint return filers relative to the ceiling of the 15 percent tax bracket for unmarried spouses.
The Jobs and Growth Tax Relief Reconciliation Act of 2003 accelerated the benefit to joint return filers by eliminating the marriage penalty for 2003 and 2004 and the Working Families Tax Relief Act of 2004 extended the benefit to 2005–07. Therefore, the marriage penalty in the lower tax brackets will be eliminated through 2010. Unless reauthorized by Congress, however, the marriage penalty will return in 2011. However, through passing those pieces of legislation, the tax system is now such that couples with disparate incomes will pay less tax than they would have paid as two single taxpayers.
- ^ Rosen, Harvey. "Is it time to abandon joint filing?", National Tax Journal 30, December 1977, 423-428.
- ^ "Marriage Penalty Relief in the New Tax Law", National Center for Policy Analysis, June 26, 2003
- ^ "For Better or Worse: Marriage and the Federal Income Tax" Congressional Budget Office, June 1997
- ^ "The myth of the marriage penalty", Liz Pulliam Weston, MSN Money
- ^ a b c d e f Donaldson, Samuel A., "Federal Income Taxation of Individuals: Cases, Problems & Materials, Second Edition", page 9. Thomson West, 2007.
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