Key Findings

A marriage penalty or bonus is the change in a couple’s total tax bill as a result of getting married & thus filing their taxes jointly.Marriage bonuses typically occur when two individuals with disparate incomes marry.Marriage penalties occur when two individuals with equal incomes marry; this is true for both high- & low-income couples.Marriage bonuses can be as high as đôi mươi percent of a couple’s income, & marriage penalties can be as high as 12 percent of a couple’s income.While research shows that marriage penalties and bonuses vị not have sầu much effect on whether a couple will marry, they vị impact how much each spouse works.It is possible lớn completely eliminate both marriage penalties & bonuses, but it would require a significant overhaul of the tax code that drastically changes the current distribution of income taxes paid.

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Introduction<1>

One unintended feature of the United States’ income tax system is that the combined tax liability of a married couple may be higher or lower than their combined tax burden if they had remained single. This is called the marriage penalty or marriage bonus.

Marriage penalties and bonuses have sầu a significant impact on the combined tax burden of couples. Marriage penalties affect taxpayers at very high & very low incomes, & marriage bonuses affect many middle-income couples with disparate incomes. Taxpayers with children also face large penalties and bonuses for marriage. While it is possible khổng lồ eliminate the marriage penalty và bonus, which would make the tax code more neutral with respect lớn marriage, it would take a significant change lớn the United States’ income tax code. As a result, lawmakers may opt for smaller marriage penalty reliefs as they have in the past.

What Are the Marriage Penalty và Marriage Bonus?

A marriage penalty or bonus is the change in a couple’s total tax bill as a result of getting married and thus filing their taxes jointly. The degree lớn which the marriage penalty or bonus affects any given couple depends on the cấp độ of their combined income, the extent to which their individual incomes are similar, and the number of children they have sầu.

Marriage Bonus

The marriage bonus typically occurs when two individuals with disparate incomes marry. When an individual with a higher income marries and files jointly with an individual with a much smaller income, the additional income is usually not enough khổng lồ push the couple’s combined income inlớn a higher tax bracket. However, due to lớn the much wider income tax brackets for married individuals, a lot of the couple’s income falls into lower tax brackets. The result is a lower tax bill.

Suppose an unmarried couple earned a total of $75,000, but the distribution was unequal: $50,000 from the first partner & $25,000 from the second (Table 1). As an unmarried couple, their combined tax bill is $13,200. When the couple gets married and combines their incomes, their taxable income remains the same. However, the tax brackets for married couples widen. This means that less of the couple’s income is taxed at the 25 percent marginal tax rate than it was when they were not married. As a result, their combined tax bill would fall by $225 khổng lồ $12,975.

Table 1. Couples with Unequal Income Typically Receive sầu Marriage BonusesTax Bill of Married & Unmarried Couple with No Children Person 1Person 2Unmarried CoupleCoupleBonus
Income$25,000.00$50,000.00$75,000.00$75,000.00Bonus
Taxable Income$14,700.00$39,700.00$54,400.00$54,400.00Bonus
Income Tax$1,743.75$5,718.75$7,462.50$7,237.50Bonus
Payroll Tax$1,912.50$3,825.00$5,737.50$5,737.50Bonus
Total Tax$3,656.25$9,543.75$13,200.00$12,975.00$225.00

Marriage Penalty

Marriage penalties typically occur when two individuals with equal incomes marry. There are marriage penalties for both high-income and low-income couples who fit this description. For high-income individuals, the marriage penalty exists because the income tax brackets for married couples at the top of the income tax schedule are not twice as wide as the equivalent brackets for single individuals. For example, the 33 percent tax bracket for singles starts at $189,300 of taxable income but starts at $230,450 of taxable income for married couples filing jointly. Adding two high, equal incomes together could easily push a married couple’s income inlớn a higher tax bracket, which results in a penalty.

An unmarried couple with equal incomes that earn a combined $300,000 would have a total tax bill of $83,232.50 ($64,374.50 from the individual income tax và an additional $18,858.00 from the payroll tax). If they were khổng lồ get married, they would be hit by a marriage penalty of $3,806.50 (Table 2). This penalty comes from two different taxes.

First, the narrower tax brackets for married individuals pushes more than $40,000 of their taxable income inlớn the 33 percent marginal tax bracket. In addition, their combined income as a married couple would push their income high enough to be affected by the Medicare Surtax of 0.9 percent on income over $250,000. When unmarried, neither had khổng lồ pay because the surtax only applies lớn income over $200,000 for singles. Table 2 also includes the Alternative Minimum Tax, though the couple’s income tax burden is high enough in both cases that they vày not need khổng lồ pay the AMT.

Table 2. High-Income Taxpayers Can Face Large Marriage PenaltiesTax Bill of Married & Unmarried Couple with No Children Person 1Person 2Unmarried CoupleMarried CouplePenalty
Income$150,000.00$150,000.00$300,000.00$300,000.00Penalty
Taxable Income$139,700.00$139,700.00$279,400.00$279,400.00Penalty
Income Tax$32,187.25$32,187.25$64,374.50$67,731.00Penalty
Payroll Tax$9,429.00$9,429.00$18,858.00$18,858.00Penalty
Medicare Surtax$0.00$0.00$0.00$450.00Penalty
AMT$27,066.00$27,066.00$54,132.00$66,817.00Penalty
Total Tax$41,616.25$41,616.25$83,232.50$87,039.00$3,806.50

For low-income individuals, the Earned Income Tax Credit (EITC) has a significant impact on marriage penalties. Adding one partner’s income lớn the other partner’s income can easily push the combined income of the couple into the phase-out range of the Earned Income Tax Credit, resulting in a reduction of the couple’s combined after-tax income.

Table 3 shows an example of a couple with equal incomes of $15,000 ($30,000 combined) with one child. Unmarried, their total tax bill would be -$1,594 due khổng lồ the refundability of the $1,000 Child Tax Credit (CTC) và the $3,359 Earned Income Tax Credit received by the individual who claimed the child. If they were khổng lồ marry, their combined tax bill would still be negative sầu, but they would face a marriage penalty of $1,087.88.

Table 3. Low-Income Taxpayers Can Face Large Marriage PenaltiesTax Bill of Married and Unmarried Couple with One Child Person 1 (Claims Child)Person 2Unmarried CoupleMarried CouplePenalty
Income$15,000.00$15,000.00$30,000.00$30,000.00Penalty
Taxable Income$0.00$4,700.00$4,700.00$5,400.00Penalty
Income Tax$0.00$470.00$470.00$540.00Penalty
EITC$3,359.00$0.00$3,359.00$2,341.12Penalty
CTC$1,000.00$0.00$1,000.00$1,000.00Penalty
Payroll Tax$1,147.50$1,147.50$2,295.00$2,295.00Penalty
Total Tax-$3,211.50$1,617.50-$1,594.00-$506.12$1,087.88

There are two reasons why this couple is hit with a penalty. First, when the couple is unmarried, one individual is able to lớn clalặng head of household, which provides a larger standard deduction và wider tax brackets. When married, the couple loses the benefit of head of household status, which results in higher combined taxable income.

There Are Many Penalties và Bonuses in the Income Tax Code

Second, as an unmarried couple, one of the parents could clalặng their child for the EITC & receive sầu the full amount of $3,359 with the income of $15,000 (Chart 1). However, when married, their total income of $30,000 pushes them into the phase-out range of the Earned Income Tax Credit, reducing the credit amount by a little more than $1,000.

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There are several areas in the tax code in which the marriage penalty & marriage bonus affect taxpayers. In the following charts, we modeled the effects of marriage on a couple’s tax bill given two factors: the cấp độ of income và the echất lượng of the couple’s income (from a couple with one earner khổng lồ a couple with equal incomes). This is done for a household with no children, one child, & two children.

Each chart’s X-axis is a measure of income from $10,000 to lớn $1 million & Y-axis is the equality of a couple’s income from a single earner khổng lồ 50-50 echất lượng, with the percent representing the nội dung of the couple’s income earned by the second earner.

Areas in the chart shaded blue represent marriage bonuses và areas shaded red represent marriage penalties. The depth of the color represents the kích thước of the marriage penalty or bonus as a percent of a couple’s total income.

The first chart shows marriage penalties and bonuses for couples without children. It shows that marriage penalties exist for low- and high-income couples with more equal incomes. As discussed, low-income marriage penalties are due to the phase-out of the Earned Income Tax Credit. High-income penalties are due to narrower tax brackets for greater combined incomes. Marriage bonuses occur mainly for taxpayers with disparate incomes. The income tax is relatively neutral for couples with combined incomes between $40,000 và $150,000 that are relatively equally distributed.

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With no children, marriage bonuses can be up khổng lồ 7 percent of a couple’s total income, and penalties can be as large as 4 percent of a couple’s income.

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The next chart shows that the individual income tax becomes much less neutral with respect to lớn marriage when a couple has a child. The Earned Income Tax Credit, which is a major driver of marriage penalties for low-income individuals, phases out much faster when the taxpayer has a child (15.98 percent instead of 7.65 percent).

Marriage bonuses also become more pronounced for low-income couples with one child. Both the Child Tax Credit and the Earned Income Tax Credit have sầu steep phase-in benefits with one child. This means a low-income, unmarried couple could decrease their total tax bill through marriage, which would add their incomes together & increase the kích thước of their EITC & Child Tax Credit.

With one child, marriage bonuses can be as large as 20 percent of a couple’s income, & penalties can be as large as 12 percent of a couple’s income.

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The distribution of marriage penalties và bonuses for couples with two children looks similar to lớn the distribution for couples with one child, but the severity of penalties and bonuses is greater. With two children, the number of possible bonuses slightly increases for low-income couples but significantly declines for higher-income couples.

With two children, marriage bonuses can be as large as 10 percent of a couple’s income, và penalties can be as large as 12 percent of a couple’s income.

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Marriage Penalties & Bonuses Matter

Marriage penalties & bonuses in the current income tax code violate neutrality. An unmarried couple and a married couple with identical combined incomes may be treated differently. In addition, the penalties và bonuses could impact people’s behaviors in two ways.

A change in a couple’s total tax bill through marriage could conceivably alter that couple’s decision to lớn get married. For example, a couple that is facing a $5,000 tax increase for simply getting married may second guess their commitment. Conversely, a marriage bonus may induce a couple that is otherwise on the fence about marriage khổng lồ tie the knot. However, most economic retìm kiếm has found that marriage penalties & bonuses have little to no effect on whether a couple will marry.<2>

Secondly, but more importantly, marriage penalties or bonuses may affect how much each spouse works. When couples get married & combine their incomes, one or both of the partners could face higher or lower marginal tax rates on their next dollar of income, which could affect their incentives to work.

For example, if an unmarried couple with $50,000 of income earned by one partner gets married, the couple as a whole gets a marriage bonus of about $2,231. However, this bonus has different impacts on the marginal tax rates on each partner’s next dollar of income. The spouse that earns the $50,000 as a single used lớn face a 32.6 percent marginal tax rate on income. Once married, the marginal rate drops 10 percentage points to 22.6 percent. However, the second earner, who unmarried would have sầu faced a 0 percent marginal tax rate as a single, now faces the 22.6 percent marginal tax rate on the first dollar of income earned.

Table 4. Marriage Penalties & Bonuses Affect Individuals’ Marginal Tax Rates Spouse 1Spouse 2
Unmarried
Income$50,000$0
Marginal Rate on next dollar of income32.60%0%
Married
Income$50,000$0
Marginal Rate on next dollar of income22.60%22.60%
Change in Marginal Rate-10.00%22.60%

According to lớn the Congressional Budget Office, these changes in marginal rates matter. The tax effect of marriage motivated higher-earning spouses (such as the spouse that earned the $50,000) lớn work between 0.1 & 0.3 percent more than they would if they had remained single, due khổng lồ the lower marginal tax rates on average. Meanwhile, second earners in the household worked 7 percent less, due lớn the higher marginal tax rates they now face. Overall, the CBO found that the earnings of couples who file jointly are between 0.7 & 1.2 percent lower than they otherwise would have been if they remained single.<3>

Fixing the Marriage Penalty

The reason there are marriage penalties & bonuses is that the U.S. tax code simultaneously attempts to satisfy three conflicting goals: equal treatment of married couples, equal treatment of married và unmarried couples, và progressive sầu taxation.<4>

In order to lớn completely eliminate marriage penalties or bonuses in the tax code, it would require giving up one of these goals. For example, if the United States created a perfectly flat individual income tax with no provisions such as the Child Tax Credit or Earned Income Tax Credit, marriage penalties and bonuses would be eliminated. Likewise, if the United States kept its current progressive sầu individual income tax, but eliminated the ability for married couples to lớn tệp tin jointly, there would also no longer be a penalty or bonus for marriage.

Changes that would eliminate marriage penalties & bonuses would drastically impact the current distribution of taxes paid and would be politically difficult to accomplish. As a result, Congress has opted to lớn incrementally reduce the effects of the marriage penalty rather than obtain complete neutrality. In 2001, Congress passed a bill that widened the 15 percent tax bracket for married individuals.<5> Most recently, Congress limited the marriage penalty in regard to lớn the Earned Income Tax Credit. This 2009 reform increased the màn chơi of income at which the EITC phased-out for married couples. However, this was only a temporary measure & will expire in 2017. This means many low-income families will face larger marriage penalties when this provision expires.<6>

Conclusion

Marriage penalties and bonuses are a way that the income tax code currently violates the principle of neutrality. These penalties & bonuses potentially affect people’s behavior, especially whether khổng lồ work. It is possible lớn completely eliminate both marriage penalties & bonuses, but it would require a significant overhaul of the tax code that drastically changes the current distribution of income taxes paid. Short of a complete overhaul, it is possible lớn reduce marriage penalties in the tax code, such as a permanent extension of marriage penalty relief for the Earned Income Tax Credit and widening the income tax brackets for high-income taxpayers filing jointly.

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Methodology for Data Calculations

In order lớn measure marriage penalties and bonuses for incomes between $10,000 and $1,000,000 a few simplifying assumptions were made:

All taxpayers use the standard deduction.All taxpayers only report wage income.All couples, before marriage, minimized their tax bill by claiming dependents in the most tax efficient manner. This also implies that couples cohabitated before & after marriage.Head of Household filing status was used when possible.

The following provisions were modeled:

The standard deductionPersonal exemptionsAll three filing statusesThe Earned Income Tax CreditThe Child Tax CreditThe Alternative Minimum TaxThe Phases-out of the Personal ExemptionPayroll Taxes (Medicare and Social Security)The Medicare Surtax

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