January 10, 2013

Effects of Marriage on Tax Burden Vary Greatly with Income Level, Equality

Nick Kasprak

Nick Kasprak

Download Fiscal Fact No. 352: Effects of Marriage on Tax Burden Vary Greatly with Income Level, Equality

Joint filing has been a source of confusion ever since the filing status was created in 1949. Marriage has the potential to create a significant tax penalty, but it can also lead to a tax bonus in other situations, and for most taxpayers, determining the effect is anything but simple.

Erratum: This chart, when originally published, was accidentally reversed horizontally while processing the image. We've corrected the error.

To illustrate how filing status affects tax liability, we’ve created a chart (above) that plots the two most important variables against each other—on the Y axis, equality of incomes between the two spouses, and on the X axis, total household wage income. The color represents the theoretical marriage penalty or bonus for a household with only wage income, no children, and no itemized deductions.

In general, there tends to be a marriage tax bonus when the two partners have widely disparate incomes and a marriage tax penalty when they have similar or equal incomes. There are two countervailing forces at work—on the one hand, the higher tax rate brackets kick in at greater income levels for joint filers than for single filers, but on the other hand, adding two incomes together can more than compensate for this effect. The need to balance these two effects is inherent in any tax system with a joint filing status—efforts to reduce the marriage bonus for certain filers will necessarily lead to a marriage penalty for others and vice versa.

With disparate incomes, a bonus results, because the addition of a small income to a much larger one is usually not enough to lift the return into the raised bracket, but in other cases, the combination of two incomes of similar size can bring the return into the higher tax bracket even despite the generally raised bracket levels for joint filers. The strongest impact is therefore on two-earner couples. If a couple has one wage earner and the nonworking spouse is trying to decide whether or not to re-enter the workforce, he or she will need to consider the high marginal tax rates that will be levied on the second salary.

Marriage penalties tend to affect low income and high income couples, but not middle income ones—low income couples because of the marriage penalty inherent in the structure of the Earned Income Tax Credit (EITC) and high income couples because the 28 percent rate bracket and above for joint filers begins at less than twice the amount for single filers. Middle income couples are much more likely to receive a marriage bonus simply because there is no penalty inherent in the bracket structure for the 25 percent rate levels and below—for joint filers, each bracket begins at exactly twice that for single filers.

Examples

As with the previous chart, all examples assume only wage income, no itemized deductions, and no children.

Table 1. Equal Low Income Marriage Penalty, 2013 Tax Law

(Lower left hand corner of chart, above)

Spouse #1 Single Return

Spouse #2 Single Return

Joint Return

Income Tax Liability

Wages

$7500

$7500

$15000

Taxable Income

$0

$0

$0

Earned Income Credit

-$487

-$487

-$356

Payroll Tax Liability

FICA

$465

$465

$930

HI

$108

$108

$218

Totals

Total Tax Liability

$86

$86

$792

Combined: $172

Marriage Penalty

$620

Table 2. Unequal Middle Income Marriage Bonus, 2013 Tax Law

(Upper middle area of chart, above)

Spouse #1 Single Return

Spouse #2 Single Return

Joint Return

Income Tax Liability

Wages

$80000

$20000

$100000

Taxable Income

$70000

$10000

$80000

Income Tax

$13429

$1054

$11858

Payroll Tax Liability

FICA

$4960

$1240

$6200

HI

$1160

$290

$1450

Totals

Total Tax Liability

$19549

$2584

$19508

Combined: $22124

Marriage Bonus

$2616

Table 3. Equal High Income Marriage Penalty, 2013 Tax Law

(Lower right hand corner of chart, above)

Spouse #1 Single Return

Spouse #2 Single Return

Joint Return

Income Tax Liability

Wages

$350000

$350000

$700000

Taxable Income

$343120

$343120

$687800

Income Tax

$97360

$97360

$220015

Payroll Tax Liability

FICA

$7049

$7049

$14098

HI

$5075

$5075

$10150

PPACA HI Surtax

$1350

$1350

$4050

Totals

Total Tax Liability

$110835

$110835

$248313

Combined: $221670

Marriage Penalty

$26643

Methodology

The graphic on page 1 above was created using code from Tax Foundation’s online tax policy calculator at www.mytaxburden.org. It is 100 pixels wide and 100 pixels tall, for a total of 10,000 pixels. Each pixel represents three runs of the calculator—once for each spouse individually and one for the joint return—for a total of 30,000 tax calculations. The income axis is logarithmic, and the left and right edges differ by a factor of 100 – meaning the income level for any given pixel is , or 1.0471, times the pixel to its left. The equality axis is linear, ranging from perfectly equal at the bottom to perfectly unequal (one spouse earns all income) at the top. The calculated marriage penalty or bonus was divided by total wage income for a percentage figure, and the color scale is based on this percentage.

Topics

About the Author

Nick Kasprak

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A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

A surtax is an additional tax levied on top of an already existing business or individual tax and can have a flat or progressive rate structure. Surtaxes are typically enacted to fund a specific program or initiative, whereas revenue from broader-based taxes, like the individual income tax, typically cover a multitude of programs and services.

A marriage bonus is when a household’s overall tax bill decreases due to a couple marrying and filing taxes jointly. Marriage bonuses typically occur when two individuals with disparate incomes marry. Marriage penalties are also possible.

A tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat.

Itemized deductions allow individuals to subtract designated expenses from their taxable income and can be claimed in lieu of the standard deduction. Itemized deductions include those for state and local taxes, charitable contributions, and mortgage interest. An estimated 13.7 percent of filers itemized in 2019, most being high-income taxpayers. 

A marriage penalty is when a household’s overall tax bill increases due to a couple marrying and filing taxes jointly. A marriage penalty typically occurs when two individuals with similar incomes marry; this is true for both high- and low-income couples.

A payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue.

The marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax.

A tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly.

Taxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income.