What to Know About the Marriage Tax Penalty

Tax reform helped level the playing field, but married couples may still find themselves at a disadvantage at tax time.

Prior to the passage of the Tax Cuts and Jobs Act of 2017, some newly married couples received an unpleasant surprise at tax time. Spouses who earned similar amounts of money – especially those considered high earners – often found themselves subject to a marriage tax penalty.

“The marriage tax penalty means that when you’re married, you lose some of the tax benefits you’d have if you were single,” says Elizabeth Lindsay-Ochoa, director at accounting firm CBIZ MHM New England. Specifically, the pre-2018 tax brackets meant spouses were often in a higher tax bracket than if they were single with the same income.

“After the tax (reform) passed, the marriage penalty shrunk,” says Mela Garber, tax leader at accounting firm Anchin, Block and Anchin in New York City. However, it still exists for high earners and hasn’t been eliminated for some nuanced parts of the tax code, such as the portion of Social Security benefits that may be taxable.

What Is the Marriage Tax Penalty?

When you marry, you have the option of filing your tax return jointly or filing separate tax returns. The marriage penalty takes effect when the taxes you pay jointly exceed what you would have paid if each of you had remained single and filed as single filers.

The 2017 tax reform law made changes to tax brackets so now the income levels for married couples filing jointly are roughly double that of single filers. “It’s basically the same until you get to the higher brackets,” says Luke Sotir, financial professional with Equitable Advisors in the greater Boston area. That has had the effect of wiping out the marriage penalty for most people as it relates to tax brackets. Sotir notes, “It really only affects higher earners at this point.”

If you take a look at the Internal Revenue Service tax brackets, you’ll notice that the brackets for married filing jointly are now almost double that of single filers for most income ranges.

Where Else Does the Marriage Tax Penalty Apply?

Although people often discuss the marriage tax penalty in terms of tax brackets, it actually applies in a number of tax scenarios.

For instance, caps on some itemized deductions are the same regardless of a person’s filing status. These include the $10,000 cap on state and local tax deductions and the cap on the mortgage interest deduction, which is limited to the first $750,000 of a loan.

“Those do not slide up for married filers,” says David Snider, CEO of New York City-based Harness Wealth. Filing separately won’t give married couples double the deduction either since their deductions must be split between the two tax forms.

As another example, some taxpayers end up paying an additional Medicare tax of 0.9% if their income reaches a certain level. While the threshold for single filers is $200,000, married couples will start paying the tax when their income hits $250,000.

Married couples who receive the earned income tax credit are also subject to income limits that are far less than double those applied to single taxpayers. “That’s a painful one if you’re a low- or moderate-income earner,” Lindsay-Ochoa says.

For the 2021 tax year, single filers with three children can have incomes up to $51,464 and receive the earned income tax credit while married couples with three children must earn less than $57,414 to receive the credit.

Retirees receiving Social Security benefits also get hit with a marriage penalty. Single taxpayers may begin to pay taxes on a portion of their Social Security benefits once they have a combined income of $25,000. If there were no marriage penalty, couples wouldn’t have to begin paying taxes until their combined income hit $50,000. However, in reality, a portion of Social Security benefits for married couples can be taxed as soon as their income reaches $32,000.

Should You and Your Spouse File Jointly or Separately?

In most cases, filing separately won’t help a couple avoid a marriage tax penalty. The one time it may be beneficial is if one spouse has significant medical expenses in a particular year.

Only health care costs in excess of 7.5% of a person’s adjusted gross income may be deducted by those who itemize. “If you file separately, you might be able to take those deductions,” Sotir says. Otherwise, a couple’s combined income might make it difficult to exceed that 7.5% threshold.

Meanwhile, in homes with a stay-at-home spouse, joint filing may reap more financial benefits. “If there is one person who makes no money, they would be better off filing jointly,” Garber says.

Snider notes, “Unfortunately, there isn’t a quick and easy rule of thumb.” As you prepare to tie the knot, it makes sense to consider the tax implications of your marriage. A tax professional can help you run the numbers to see whether or not filing separately would help you avoid any potential marriage tax penalty.