Ed note: Have you heard of the “marriage penalty?” No, it doesn’t refer to your friends trashing you because you tied the knot. It’s a common tax phrase, but it can be confusing and complicated. Miranda Marquit has some examples that will illustrate it more clearly. Leer en español.
For the majority of married couples, filing a joint tax return makes sense, as it usually means you’re in a lower tax bracket. However, things change as you and your spouse approach parity in income, especially if you are both high earners.
Unfortunately, though, if you find yourself subject to the “marriage penalty” assessed on high earners, you can’t just file as single. Instead, if you attempt to beat the marriage penalty, you could find yourself in a worse position with the status Married Filing Separately – which usually results in the highest tax rate.
What does “marriage penalty” mean?
In general, if you are married, it often makes sense to file jointly. For couples in which one spouse makes much more than the other (or if one spouse stays home and has practically no income), filing jointly can lower your tax bracket.
For example, if you have $187,000 in taxable income and your spouse has $38,000, your total combined taxable income is $225,000. Filing jointly puts you in the 28% bracket. When you file separately, your spouse is the 25% bracket and you are in the 33% bracket, an effective tax rate of 29% on your combined income. Even if you had not gotten married, and filed as single, your tax rate would be the same as Married Filing Separately. So in this case, there is a small tax advantage to filing jointly.
| Married Filing Jointly | Married Filing Separately | If you were unmarried (Single*) | |
|---|---|---|---|
| You: $187,000 | – | 33% | 33% |
| Your spouse: $38,000 | – | 25% | 25% |
| Total income: $225,000 | 28% | (Effective tax rate = 29%) | (Effective tax rate = 29%) |
However, the marriage penalty comes into effect if you and your spouse have similar incomes, in the case of two high earners. What if you earn $230,000 and your spouse earns $187,000? Now your joint income is $417,000 and you are in the 35% bracket. You can see below, the tax rate is more favorable when using MFJ, compared to MFS. However, if you had remained single, you would each be taxed at a lower rate – effectively meaning you are penalized (from a tax perspective) by getting married.
| Married Filing Jointly | Married Filing Separately | If you were unmarried (Single*) | |
|---|---|---|---|
| You: $230,000 | – | 39.6% | 33% |
| Your spouse: $187,000 | – | 33% | 33% |
| Total income: $417,000 | 35% | (Effective tax rate = 36%) | (Effective tax rate = 33%) |
*If you are married, you cannot use the Single filing status. This is just provided for comparison purposes.
You can find the full tax rate tables from the IRS.
Net Investment Income Tax
But that’s not all. The net investment income tax, which applies a rate of 3.8% to investment income for certain earners, can kick in at different thresholds. If you’re married filing separately, the threshold is $125,000. If you’re married filing jointly, you don’t owe it until you make $250,000, and if you are single you owe it at $200,000.
Other Considerations
You can see that, depending on the scenario, along with your income vs. your partner’s income, getting married might result in a penalty. The same is true when you look at income-based phaseouts for deductions. The higher your income – and your partner’s – the fewer the tax advantages of being married.
But don’t automatically make the mistake of thinking you can avoid this penalty by filing MFS. In most cases, that’s even worse. Unless you have very specific circumstances, or if you are concerned that your spouse is cheating on his or her taxes, MFS is rarely the way to go.
Still have questions about the marriage penalty or about filing statuses? You can always make an appointment to talk with one of our H&R Block tax pros in person. Make an appointment today.
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