Marriage is what brings us together, but along with the matrimonial duties come legal and financial responsibilities. That includes taxes, and more specifically, a potential for a marriage tax penalty. This means that as a married couple you end up paying more taxes than you would if you filed separately. Below, we go over what the marriage tax penalty is, what it could mean for you and how you can avoid it. You can also work with a financial advisor who may be able to prepare your finances for any potential unexpected costs or possibly lower your potential tax bill.
What Is a Marriage Tax Penalty?
A marriage tax penalty occurs when a married couple incurs a higher tax rate when filing jointly than they would if they were filing separately. The reason for this penalty is that state and federal tax brackets don’t always double the single-income rates for married couples filing jointly. This occurs especially with moderate-to-high-income earners who are making similar amounts of money.
The 2017 Tax Cuts and Jobs Act changed the brackets to lessen the penalty. But, you may still pay a marriage tax penalty if you and your partner are making over $647,850 on your 2022 taxes.
Where this penalty is more prevalent is on state taxes and they don’t all look the same. 15 states have some form of marriage penalty built into their income tax bracket structure, with only certain brackets incurring the penalty. As of 2022, these states are:
- California
- Georgia
- Maryland
- Minnesota
- New Jersey
- New Mexico
- New York
- North Dakota
- Ohio
- Oklahoma
- Rhode Island
- South Carolina
- Vermont
- Virginia
- Wisconsin
On top of this, the state of Washington applies a capital gains tax with a threshold of $250,000. This tax is collected on income above $250,000 regardless of whether you’re filing singly or jointly.
What Is a Marriage Tax Bonus?
A marriage tax bonus occurs mostly in households where one person makes most of, if not all the income. By filing jointly, they qualify for a lower tax bracket than they would have if they were single filers. This bonus is the opposite scenario of a marriage tax penalty.
For example, say you and your spouse filed jointly for $110,000 in income for 2021, which puts you in the 22% tax bracket. $90,000 of that was your income. If you were a single filer with $90,000, you’d be in the next tax bracket higher, at 24%.
What a Marriage Tax Penalty Could Mean for You
Let’s work through a specific example to show you how much a marriage tax penalty could cost you. To keep things more universal, we’ll use the Federal tax brackets, even if it only applies to the highest income bracket. For this example, Let’s say you and your spouse make a joint income of $1,000,000 in 2021.
Using our handy Federal Income Tax Calculator, you can see that $1,000,000 results in an estimated$297,236 in federal taxes (without accounting for deductions). Say $500,000 of that is your income and $500,000 of that is your spouse’s. If you weren’t married and filed singly, the total estimated tax burden would be $290,304, a nearly $7,000 difference.
In a state like New York, you could be charged a rate of 6.85% with a joint filing of $323,201 or more. The single filing cap for this bracket is $215,400. If you and your spouse-to-be are making $200,000 each, you can expect to be bumped up a bracket when you marry.
How to Avoid the Marriage Tax Penalty
As the old saying goes, there are two certainties in life: death and taxes (but not always the death tax). Unlike death, taxes can often be avoided or offset. As stated above, there are only 15 states that have such a penalty in their state taxes with no way to avoid it besides moving.
Seven other states, along with Washington D.C. have a marriage penalty baked into their tax brackets, but they allow married couples to file separately on the same return. These include:
- Arkansas
- Delaware
- Iowa
- Mississippi
- Missouri
- Montana
- West Virginia
You can’t avoid the marriage penalty by filing separate returns. This will usually cost you more in taxes. So if you’re in a state where you’d incur a marriage penalty and can’t avoid it, the best thing you can do is offset it. You may want to start by looking into itemized deductions. You can deduct typically things like mortgage interest and side hustle expenses to lower your tax bill. If you have any questions, you should contact a financial advisor.
Other Tax Implications of Marriage
On top of the marriage tax penalty, couples should consider other tax implications of marriage, especially if they make comparable incomes. Any tax bracket, rebate or refund that doesn’t double the income limits when going from single to joint filing can be subject to this. For example, the Medicare tax increases for single filers at $200,001, and for joint filers at $250,000. A married couple would much quicker incur this extra tax. It’s important to work with a tax expert if you’re worried about how much extra you may be paying on taxes every year.
The Bottom Line
The 2017 Tax Cuts and Jobs Act eliminated the marriage tax penalty on federal income taxes for all but the highest earners. Still, the income bracket penalty exists at the state level for 15 states. If you live in one of these states and want to avoid it, you either need to relocate, which could cost more than the tax or offset it with deductions. Either way, you’ll end up paying your share of taxes but may be able to reduce that bill with the right preparation.
Tips for Tax Planning
- Lower your tax liability by working with a financial advisor. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Make filing your taxes simple and easy by using an electronic filing service. TurboTax is one of the most popular tax-filing services for a reason: it keeps getting high ratings and customers return to it year after year.
- The best thing about tax season is getting a refund. See if you’ll get a check or have to pay up using SmartAsset’s tax return calculator.
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