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IMA Tax Policy Blog

Married Couples And The U.S. Income Tax Code

By Richard Borean, The Tax Foundation

New report examines why some married couples are penalized by the income tax code while others receive a bonus.

With wedding season just around the corner, many couples are excited about the prospect of saving some money on their tax returns next year. However, while some couples will be delighted to find that they’ve received additional refunds, others will be disappointed to find that the U.S. income tax code actually penalizes them for filing jointly.

According to the latest report from the nonpartisan Tax Foundation, an unintended feature of the 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.

The degree to which the marriage penalty or bonus affects any given couple depends on the level of their combined income, the extent to which their individual incomes are similar, and the number of children they have.

Marriage bonuses can be as high as 20 percent of a couple’s income and typically occur when the two individuals have disparate incomes. When an individual with a smaller income is added to their partner’s much higher income, it is usually not enough to push the couple’s combined income into a higher tax bracket. Due to the much wider income tax brackets for some married individuals, a lot of the couple’s income falls into lower tax brackets.

Marriage penalties can be as high as 12 percent of a couple’s income, and typically occur when two individuals with similar incomes marry.

For low income individuals, the Earned Income Tax Credit has a significant impact on marriage penalties. Adding one partner’s income to 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.

High-income couples are primarily penalized because of narrow income tax brackets for married couples at the top of the income tax schedule. The combined income between two high income earners often bumps joint filers into the next tax bracket, increasing their combined tax liability.

“Marriage penalties and bonuses exist because the U.S. tax code simultaneously attempts to satisfy three conflicting goals: equal treatment between married couples, equal treatment between married and unmarried couples, and progressive taxation,” said Tax Foundation Economist Kyle Pomerleau. “Changes that would eliminate marriage penalties and bonuses would require giving up on one of these goals and would drastically impact the current distribution of taxes paid. It would be politically difficult to accomplish.”

Short of a complete overhaul, it is possible to reduce marriage penalties in the tax code. Permanent extension of marriage penalty relief for the Earned Income Tax Credit and widening the income tax brackets for high-income taxpayers are two possible options.

Full report: Understanding the Marriage Penalty and Marriage Bonus

Source: The Tax Foundation, the nation’s leading independent tax policy research organization. Since 1937, our principled research, insightful analysis, and engaged experts have informed smarter tax policy at the federal, state, and local levels.

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