Does the Marriage Penalty Still Exist Today?

A couple's tax situation changes when they get married—for better or worse. Here are the most important things to know if you recently tied the knot or you're planning to get married later this year.

Timing Counts

Your marital status as of December 31 determines your tax filing options for the entire year. Even if you're married at year end, you have two options when filing your federal income tax return:

1. Married filing jointly status, or
2. Married filing separately status.

Married couples usually file jointly for two reasons. First, it's simpler. You must file only one Form 1040, and you don't have to worry about figuring out which income, deductions and tax credits belong to which spouse.

Second, it's often less expensive. That's because using married filing separately status makes you ineligible for some potentially valuable tax breaks, such as the child care credit and higher education credits. You can also have a tax-free home sale gain of up to $500,000 if you file jointly vs. only $250,000 if you file separately. Therefore, filing two separate returns—based on your respective income, deductions and credits—may result in a bigger combined tax bill than filing one joint return.          

Marriage Penalty vs. Marriage Bonus

You've undoubtedly heard about the so-called "marriage penalty" that causes some couples to have higher overall tax bills than when they were single. Before the Tax Cuts and Jobs Act, this was common mainly because, at higher income levels, the tax rate brackets for joint filers weren't double the rate brackets for single people.

However, for 2018 through 2025, the TCJA eliminated this factor except at the highest income levels. Through 2025, the 10%, 12%, 22%, 24%, 32% and 35% tax brackets are exactly double the amounts for joint-filing couples as for single people. Similarly, through 2025, the basic standard deductions for married joint-filing couples are double the amounts for single filers.

Unfortunately, the marriage penalty still can be expensive if your combined income puts you into the maximum 37% federal income tax bracket. For 2024, the 37% bracket starts at taxable income of:

• $609,351 for single people, and
• $731,201 for joint-filing couples.

The starting point for single individuals in this bracket clearly isn't double the amount for married couples who file jointly.  

Marriage Penalty Examples

To illustrate when the marriage penalty might come into play for higher income couples, consider these hypothetical scenarios:

In 2024, Jack and Jill each have $600,000 of taxable income, for a combined total of $1.2 million. If they get married and file jointly, the last $468,800 of their combined income ($1.2 million minus $731,200) would be taxed at the maximum 37% rate. If they stay single, the maximum rate for both would be 35%. The marriage penalty hits because both Jack and Jill have high and equal incomes.

In contrast, George and Martha have taxable incomes of $300,000 and $900,000, respectively, for 2024. Their combined total is $1.2 million. If they get married and file jointly, the last $468,800 of their combined income ($1.2 million minus $731,200) would be taxed at the maximum 37% rate. But if they stay single, the maximum 37% rate would hit the last $290,650 of Martha's income ($900,000 minus $609,350). George would pay a maximum rate of 35% on his income.

Comparing these two examples, the marriage penalty would be higher for Jack and Jill than it would be for George and Martha. Being married and filing jointly would cause the maximum 37% rate to hit more of the first couple's combined income than the second couple's combined income ($468,800 vs. $290,650) than if they stay single.

Marriage Bonus Examples

On the other hand, if one person earns most or all of the taxable income, getting married and filing jointly could reduce the couple's combined tax bill. This is the so-called "marriage bonus."  

For example, Ben and Jen have $1.2 million in combined taxable income. Ben earns $1.15 million, and Jen earns only $50,000. If they get married and file jointly, the last $468,800 of their combined income would be taxed at the maximum 37% rate ($1.2 million minus $731,200). Their 2024 federal income tax bill would be $370,126.

However, if Ben and Jen stay single, the maximum 37% rate would hit the last $540,650 of Ben's taxable income ($1.15 million minus $609,350). Jen would pay a maximum rate of 22% on her taxable income. For 2024, Ben's tax bill would be $383,688, and Jen would owe $6,053, for a combined total of $389,741.

In this example, the couple would reap a marriage bonus of $19,615 if they get married and file jointly ($389,741 minus $370,126). That's because less of their combined income would be taxed at the maximum 37% rate than if they stay single. If one spouse has less than $50,000 of taxable income or no taxable income, the marriage bonus would be higher.

Tax Results at Lower Income Levels

Generally, if you have no more than $609,350 of combined taxable income, your federal income taxes will be similar for 2024, regardless of your marital status. And if one person earns all the taxable income and you're below this threshold, your tax results will be the same, regardless of your marital status.  

For instance, Ross has $200,000 of taxable income and Rachel has $400,000 of taxable income, for a total of $600,000 for 2024. If they get married and file jointly, their tax bill would be $150,750.  If they stay single, Ross's tax bill would be $41,687, and Rachel's tax bill would be $110,375, for a combined total of $152,062. They'd collect a modest marriage bonus of $1,312 ($152,062 minus $150,750) by getting married and filing jointly. 

Likewise, in 2024, Ricky has $600,000 in taxable income, and his fiancée, Lucy, has no income. If they get married and file jointly, their tax bill would be $150,750. If they stay single, Ricky's tax bill would be $150,750 and Lucy would owe nothing. So, there's no marriage penalty or bonus for this couple.  

Warning for Married Couples who File Jointly

There are advantages to filing jointly, but there's also a potential downside. If you file jointly, you may be on the hook for your spouse's tax errors, omissions and misdeeds.

For any year that you file a joint return, both spouses are generally "jointly and severally liable" for any federal income tax underpayments, interest and penalties. Joint and several liability means the IRS can come after you if collecting from your spouse is difficult or impossible. They can come after you even after you've divorced. You can try to get relief under the so-called "innocent spouse rules." However, you'll need to prove that you didn't know about your spouse's tax failings, had no reason to know and didn't personally benefit.

However, if you file separately, you have no liability for your spouse's tax misdeeds or unintentional mistakes. So you might want to consider filing separately if you doubt your spouse's financial ethics and attitude about paying taxes. While your tax bill might be somewhat higher if you file separately than if you file jointly, that could be a small price to pay to hedge against the joint-and-several liability threat.

Other Tax Considerations

Your marital status also may affect certain valuable tax breaks. For example, the principal residence gain exclusion break is up to $500,000 for a married joint-filing couple, but it can't exceed $250,000 for a single filer. This break isn't subject to limitations based on your income level.

However, some tax credits are limited based on your income level. If one person has a high income while the other has a more modest income, the latter individual may be able to claim the child tax credit, education tax credits, the adoption tax credit and other tax breaks if the couple doesn't get married. If they get married and file jointly, these breaks may be reduced or completely phased out due to the couple's combined high income.   

Now or Later

Your commitment to spend the rest of your life with the person you love doesn't usually hinge on your tax situation. But it's important to understand the tax implications and your post-nuptial filing options. Your SSB tax advisor can help you run the numbers and plan ways to get the best tax results. Depending on the circumstances, some engaged couples may decide to hold off on saying "I do" until 2025, while others might choose to tie the knot before year end.

©  2024