April 24, 2014

The Marriage Tax Bonus

You've probably heard of the Marriage Tax Penalty.    Have you heard of the Marriage Tax Bonus?

Most married couples receive a Marriage Tax BONUS rather than a penalty.

My wife and I pay a lower tax bill then I would pay if I was single.   Since my wife doesn't work we get a lower tax rate and higher deduction and exemption.   This is generally the case for a married couple with only one income earner.   This gives us a Marriage Tax Bonus of several thousand dollars a year.

Lets look at a couple examples.

Say you make $50,000 and you're single.   Your basic tax bill would be $5,929.   If you get married and your spouse does not work then your taxes would be $3,608.   The Marriage Tax Bonus is the difference or $2,321.
If you make $100,000 then the single filer tax bill would be $18,493 and married would be $11,858.    Thats a Marriage Tax Bonus of $6,635.

 A single income couple is going to cause the largest Marriage Tax Bonus.   For married couples with two incomes there may be a bonus or there can be a penalty.  It depends on the income levels and resulting tax brackets before and after marriage.

The TaxPolicyCenter said :
"Before the 2001 tax act, married couples were already significantly more likely to get bonuses than penalties. The Congressional Budget Office estimated that 51 percent of married couples received marriage bonuses totaling nearly $33 billion in 1996, and 42 percent incurred marriage penalties totaling almost $29 billion."

But note that is before the 2001 tax act.   The 2001 tax act changed things to remove the penalty for the lower tax brackets.   After that 2001 reform the % of people getting bonuses should be even higher.   So now the % of people getting a marriage bonus is above 51%.

To roughly figure if you have a Marriage Tax Bonus or a Marriage Tax Penalty you can use the calculator at the Tax Policy Center.


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