Understanding the Marriage Penalty

Marriage brings many joys, but one of the challenges might show up in an unexpected place - your tax return. Whether you’re changing your filing status in 2022 because of marriage, divorce or another event (or even if your filing status staying the same), understanding how marriage affects your tax obligations will help you avoid surprises when you file.

What Is the Marriage Penalty?

The marriage penalty occurs when the dollar ranges for married taxpayers (joint filers) are not exactly double the dollar ranges for single taxpayers. It results from the way the graduated tax rate system works, based on your tax filing status and other tax return items. Married taxpayers are often taxed more than they’d be as two single filers.

When Both Spouses Have High Income

The marriage penalty often applies to high-income couples. For example, let's say John's taxable income is $400,000 per year, while Jane's comes in at $300,000. Before getting married, John's tax bill using the 2022 tax brackets would be $113,753 using a single filing status, while Jane's tax bill would be $78,753, for a combined tax liability of $192,506. Once they marry, the couple would have a tax bill of $193,549 using married filing joint tax brackets.

Local Taxes Over $100,000

Legislation also limits the annual deduction for state and local tax (SALT) payments to $10,000. This limit is the same for a married couple as a single taxpayer. For instance, assume that a couple pays $25,000 in property taxes in 2022. As joint filers, their deduction is limited to $10,000, whereas they could write off a total of $20,000 if they were both single filers.

Tax Planning Opportunity

While no one is saying you should get married or divorced because of the marriage penalty, factoring it into your tax planning can make a big difference. And there are some tax advantages to marriage. For example, single taxpayers cannot contribute to an Individual Retirement Account (IRA) unless they have earned income. However, if you work and your spouse does not, you can contribute to an IRA for your spouse. To learn more strategies for minimizing your taxes no matter what your marital status is, click here to schedule an appointment with one of Gold Standard's seasoned tax accountants.

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