Before 2017, taxpayers had to live with something known as “the marriage penalty.” In a perfect world, when two people file a joint tax return, they should move into higher tax brackets at twice the income of individual taxpayers—right? But for most of the years that the tax code has existed, the tax bracket thresholds for joint filers were considerably much less than twice the bracket thresholds for single ones.
The marriage penalty has been largely eliminated for most taxpayers. Today, single filers move into the 24% tax bracket at $86,375 of income (the tax writers don’t seem to be big fans of even numbers), and joint filers enter the 24% bracket at exactly twice that amount: $172,750. Single filers enter the 35% bracket at $209,425 of income, while joint filers get there when their income reaches $418,850.
But here’s where it gets interesting. Single filers enter the (current) top 37% bracket once their income reaches $523,600, while joint filers start paying at a 37% rate when their reported income is above $628,300. For those who are somewhat math-challenged, the latter is much less than twice the former.
There are other residues of the marriage penalty still lurking in the tax code. Single people who receive Social Security retirement benefits pay taxes on those monthly checks when their income exceeds $25,000. For joint filers, the threshold isn’t $50,000; instead, the taxes start when the couple reaches $32,000 in income. And single filers above $200,000 in income pay a 0.9% wage surtax and a 3.8% investment income tax. The joint filer threshold to be hit with these surtaxes is not $400,000; it’s $250,000. If singles who each earn $125,000 to $200,000 decide to marry, they’ll get hit with these extra taxes that they wouldn’t have had to pay before.
One might think that the tax code would encourage marriage, rather than penalize it. Instead, since 2017, the various features of our tax system penalize married couples a bit less than they did before—which the less cynical among us should probably count as progress.
This article was written by an independent writer for Brewster Financial Planning LLC and is not intended as individualized legal or investment advice.