June 6, 2008

The marriage penalty

I found this article on MSN : The Myth of the Marriage Penalty. It discusses whether there is really a tax penalty for married couples over single filers. Check out the article it makes some interesting points. Basically it seems that with current tax law at least that there really isn't a penalty in general with some rare exceptions. But even before tax changes in 2001 the majority of people didn't have a penalty.

I was curious to check the numbers so I decided to compare taxes for a couple situations. I looked at combining equal incomes of $40k and combining disparate incomes of $100k and $40k.

Equal income: $40k + $40k

Lets compare two people who make $40k each. If single you would get a deduction of $5,350 and an exemption of $3,400 for a taxable income of $31,250. The tax bill on that for a single person was $4,293. So two people filing single would pay $8,586 on $80,000 combined income.
If those same two people got married and still made combined $80k then their taxable income would be doubled at $62,500. If married filing jointly the tax on that would be $8,589.

So in this case the income tax is virtually the same between single or married.

Disparate income : $100k + $40k

If there are two people with one making $40k and the other making $100k then their tax filing single would be $4,293 and $19,654 respectively. If those two people get married and file jointly with a combined income of $140k then the tax bill is $23,473.

In this case the tax bill is $23,947 separately and $23,473 joint.

So in both cases there is no penalty.

These are only a couple examples and they only use very plain tax circumstances with no itemization or anything but plain standard deduction. I'm sure other situations would differ.

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