What is the Marriage Tax Penalty

Marriage penalties refer to higher taxes that certain married couples need to pay if the spouses make approximately the same income. If two married people file one tax return they have to pay more as compared to two single people making the same amount of money. The tax penalties are applicable only to married couples and the percentage of couples affected has been changing over the years.

There was a time when filing tax returns jointly was advantageous to a married couple with different incomes. The concept of income averaging was launched and though it is still advantageous for a couple with a stay at home spouse, it causes working couples to pay more as compared to singles.

Tax Deductions Rates

These tax deductions were introduced in 1969 and the government tried to remove the advantage available to married couples as compared to single taxpayers. As a result, married couples end up paying more tax than they would have had they remained single.

In 1996, about 42% of the married couples paid more as they had to file jointly and the average tax penalties were about $1,380. However, 51% of the married couples paid less and the average saving was about $1,300. The remaining 7% couples paid the same amount as they would have paid had they remained single and filed separately

The worst part is that even married couple filing tax separately is subjected to tax penalties and need to pay higher taxes.

Marriage Tax Penalty Calculations

I will show you how calculate penalty. While a single person pays 35% tax only for an income of more than $373,651, a married couple filing jointly has to pay the same rate for a combined income of more than $373,651. A married couple filing separately, on the other hand, has to pay 35% tax for an individual income exceeding $186,826. However, the silver lining is that marriage penalties are not applicable to couples in the lower income group for 2010 and will not be applicable in the coming years if ratified by the Congress.

Most experts believe that tax penalties are a thing of the past and the aim of the government should be to create simple tax laws. It is advisable to allow people to file returns separately irrespective of whether they are married or single to do away with the confusion and create an easier to understand tax code.