Love and Taxes

Valentines Day is February 14th. While most of us are thinking about roses and chocolates, your tax accountant is thinking about the connection between love and taxes. Here is a quick summary of some of the ways marriage will affect your taxes.

A couple suffers a marriage penalty if the couple pays more income tax as a married couple than they would if they were singles and filed as individuals. On the other hand, a couple receives a marriage bonus if they pay less income tax as a married couple than they would as singles.

These marriage penalties and bonuses exist because the US has a progressive income tax system (the more you make, the higher marginal tax rate you’ll pay), and most married couples file a joint return. Married couples are not required to file a joint return, but filing separate returns as a married couple almost always results in a higher tax liability.

Overall, the federal income tax system is friendly to married couples – more couples receive marriage bonuses than marriage penalties. Marriage penalties are more common for spouses with similar incomes when the tax brackets for joint filers are less than twice as wide as those used for single filers. That situation used to be a lot more common, but the Tax Cuts and Jobs Act of 2017 made it so that today, this only happens for married couples with income above $622,000.

Couples with disparate incomes are much more likely to receive a marriage bonus. When one spouse earns all or almost all of a couple’s income, a marriage bonus almost always occurs because the higher earner’s income is taxed in a lower joint tax bracket than would be used if the higher earner were single.

Schreiber Accounting and Advisory can help you get your taxes under control with comprehensive tax compliance and tax planning services. Contact the firm for more information.

Material discussed is for informational purposes only. It is not to be interpreted as investment, tax, or legal advice. Individual situations vary, and this information should only be relied upon when coordinated with individual professional advice.