EXECUTIVE SUMMARY
Long-standing features of the Code provide a lower combined income tax liability for an unmarried couple than the liability for a married couple filing jointly, particularly where both partners have equal wage income and one or both have dependent children. This is sometimes referred to as a “marriage tax penalty.”In some cases, though, married couples filing jointly may have a marriage tax benefit, for example, where one partner has significantly greater income than the other.
The law known as the Tax Cuts and Jobs Act (TCJA) addressed the individual tax rate bracket structure’s previous contribution to a marriage tax penalty by equalizing married filing jointly tax amounts with those of two single individuals combined (each with half the amount of taxable income of the joint filers), up to the bottom threshold of the highest tax bracket.
The TCJA, however, left other factors contributing to a marriage tax penalty unchanged, and some TCJA changes increased the penalty in certain instances.Head-of-household filing status provides a clear tax advantage to unmarried couples with qualifying children or other individuals, unchanged under the TCJA. The structure of the earned income tax credit also favors lower- to middle-income single parents to a greater extent than their married counterparts.The TCJA’s limitations on itemized deductions for state and local taxes and mortgage interest may also increase the marriage tax penalty where two individuals combined have a higher limitation threshold than a married couple.Thresholds of combined total income for taxability of Social Security benefits may similarly favor unmarried couples.
By Amy J.N. Yurko, J.D., Ph.D.; Christine Cheng, Ph.D.; and Cheryl T. Metrejean, Ph.D.
The U.S. federal tax system has featured some form of higher income taxes for dual-earner married couples than for two unmarried persons since 1913; this is commonly referred to as the marriage tax penalty. Similar to prior tax reforms, the law known as the Tax Cuts and Jobs Act (TCJA)1 preserved the penalty for marriage, reducing some components and creating some new concerns.
This article explores the current state of the marriage tax penalty, identifying some important sources and their related costs. The analysis also reveals which working couples are unaffected by the penalty and potentially the beneficiaries of a marriage tax subsidy. This article’s purpose is not to influence couples’ marriage decisions but to inform tax professionals, taxpayers, and regulators regarding the current state of the extra tax burden associated with marriage.
Brief history and background
The dual-earner marriage tax penalty is created by several provisions. The Revenue Act of 19132 created the first provision, the standard deduction, by providing a $6,000 deduction for unmarried dual-earner couples ($3,000 per single taxpayer) but only $4,000 for married couples. The head-of-household (HOH) status was introduced in 1951 to provide tax relief to war widows. However, by creating preferential treatment for unmarried working parents, this new tax status magnified the dual-earner marriage tax penalty for married parents of dependent children.
TheTax Reform Act of 19693 established a progressive tax rate structure based on taxpayers’ filing status (e.g., single, married filing jointly (MFJ), or HOH), thus expanding and firmly embedding the marriage tax penalty within the tax system. Still later, the Tax Reduction Act of 19754 created the earned income tax credit (EITC) to help low-income working households. However, while well intended, the credit was introduced in a manner that further expanded the marriage tax penalty for low-income, married working parents of dependent children.
These fundamental tax provisions5 establish the following taxing order: Single-earner married couples incur the lowest tax burden; unmarried dual-earner couples incur a greater burden; and dual-earner married couples incur the greatest burden. Over the years, Congress has modified the marriage tax penalty through various tax reforms, including, most recently, the TCJA. However, since 1913, the federal income tax burden of a dual-earner couple generally increases if they marry, and this penalty is greater if the couple have dependent children.
The marriage tax penalty following the TCJA
The TCJA greatly modified many components of the Code, including those affecting the marriage tax penalty. The following discussion presents the sources of the marriage tax penalty in the post-TCJA era. While some working couples without dependent children may now be unaffected by the penalty, the Code continues to penalize dual-earner married couples with dependent children. Further, many couples, with and without children, including Baby Boomers who are retiring, may be affected by several new deduction limitations.
Marriage tax neutrality or subsidy
Because the TCJA expanded some reforms introduced by the American Taxpayer Relief Act of 2012 (ATRA),6 the Code provides greater equity for dual-earner couples with no dependent children. In other words, the 2018 Code may in some situations impose a tax burden on a married couple filing jointly similar to that of two single filers combined. The table “Effect of Standard Deductions on Filing Statuses,” (below) presents the 2018 standard deduction amounts and tax brackets for single, MFJ, and HOH taxpayers. ATRA equalized the standard deduction, establishing that the standard deduction for an MFJ couple should equal that provided two single taxpayers. The TCJA increased both standard deductions, preserving this equality. In 2018, the $24,000 MFJ standard deduction equals twice the $12,000 single filers can claim.
In addition, ATRA partially equalized the tax brackets so that married couples may have the same amount of taxable income subject to the lower brackets (15% or less) as two similarly situated single taxpayers combined. The TCJA further expanded the equality of the progressive rate system. Beginning in 2018, the tax brackets of an MFJ couple are equal to those provided two single taxpayers through $600,000 of taxable income. Therefore, beginning in 2018, there may be no marriage tax penalty for many…
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