What is "The Marriage Penalty"?
One of the reasons that people start questioning, "Should we file jointly or should we file separately?" is they've heard about the "Marriage Penalty." The marriage penalty comes about if you have a husband and wife both earning some large income. What's large? I don't know. The answer's going to be different depending on the individual. But let's say we have a husband and wife both earning $75,000. They could fall into the marriage penalty, because the way the tax law is designed is it's a graduated tax rate. It goes from 0 to 10 percent, 15, 25, 28, 33, 35, on up to 39 percent. Well, bear in mind that you're filing a joint tax return. The first spouse, the husband, to use him first, he's got $75,000 worth of income. He's already eaten up the 10 percent, the 15 percent. He's in the 25 percent bracket. Now you have the wife's income on top of that. She's going to take up the rest of the 25 percent and move up into 28 and maybe even the 33 percent tax bracket. Well, if you take two individuals earning $60,000 apiece, they conceivably could pay more income taxes than if they were two single people filing separate tax returns. Problem being, if you're married, you're married. You can't file as a single individual anymore. The IRS did try to alleviate what they called the marriage penalty in regards that they had the standard deduction, which we'll talk about another time. But the standard deduction of $5,100 for a single person is doubled for a married couple. That was the IRS's way of trying to eliminate the marriage penalty. To know if you get caught with the marriage penalty or not, it means running the numbers and then sitting down with that tax professional and trying to see if there's some way we can get around it.
