Marriage and the tax penalty.
March 7, 2014 4:47 PM   Subscribe

Should we get married this year, or will that end up in a tax penalty, considering our incomes are similar and we would end up in a higher tax bracket?

We are considering getting married this year, but first we decided to look at how that would affect our taxes.

Married filing jointly would put us in the higher tax bracket, which means we pay ~$4000 more per year, jointly. Married filing separately would also put one of us in the higher tax bracket - not by much, but still. Being single, we can continue enjoying our lower tax bracket for another ~5-10 years, based on our annual salary increases. But I am wondering if I am missing something here, because why would people in our situation ever get married*?

Is there some kind of marriage credit that I am not taking into account? Also, he is on the mortgage for his mom's house, so he gets a lot more money back every year thanks to interest/property taxes. Would that affect us tax-wise if we got married?

*I realize that there are other benefits to getting married, but they do not apply to us right now (no plans of kids, house buying, or dying). We can really go either way as far as when to get married - it would be nice to be officially married this year from a sentimental point of view, but not if it costs us money! We can wait a few years until we need the other marriage/legal benefits if this is the case.

If this is a question for a CPA, then we will go to one, but first I wanted to find out if we are mis-interpreting something from our googling, or if this is a pretty standard problem for people in the middle-top of the $36,251 - $87,850 single income bracket.
posted by anonymous to Law & Government (14 answers total) 5 users marked this as a favorite
Get TurboTax and try it both ways.

because why would people in our situation ever get married

I'm sorry we ever did, legally. Being married has been absurdly fucking expensive.

(I love him and all, but I'm pretty sure he agrees, since he's the one who arranges our IRS payment plans every other damn year.)
posted by Lyn Never at 5:00 PM on March 7, 2014 [3 favorites]

Oh! And

people in the middle-top of the $36,251 - $87,850 single income bracket

is AMT territory. You should see this if you do it in TurboTax (or whatever software you have at hand), but also try a run pretending to own a house and see what that does.
posted by Lyn Never at 5:07 PM on March 7, 2014

If you are not married and you have dependents then one of you can file as Head of Household rather than Single.
posted by Riemann at 5:11 PM on March 7, 2014

This seems pretty standard. A coworker of mine recently mentioned they were getting screwed for this exact reason. Depressing.
posted by stoneandstar at 5:16 PM on March 7, 2014

$4000 in extra taxes seems really high. Going from the 25% bracket to the 28% bracket is only an extra 3%, and only on the income you earn over $146,600. It sounds like you are mistakenly applying the highest tax rate to your entire income, which is thankfully not how it works. (An extra 3% of $146,600 is $4398). You might have a marriage penalty, but it is likely between $0 and a few hundred, not thousands.
posted by 2bucksplus at 5:28 PM on March 7, 2014 [23 favorites]

Yeah, I mean the answer to "why would people in our situation ever get married" is all the other reasons, either legal (my sister and her husband's marriage was partially instigated hwen she had to spend time in the hospital and he was frustrated with his second-class status there) or just emotional.

Having similar middle-class incomes is indeed in "marriage penalty" territory, easiest way to check is to just run the numbers in TurboTax (you can do this for free online if you dont actually file with them) and see what happens.

Financially speaking, marriage is great if one spouse makes very little or no money while the other makes a lot. Its not very good if you both make average-to-good money. (I doubt it matters if you both make little money, since you would be paying little income tax then, and the taxes that hit poor people like Social Security and Medicare are not affected).
posted by wildcrdj at 5:29 PM on March 7, 2014 [2 favorites]

Is it possible you would save a bit in other ways that would offset the tax penalty? Health insurance premiums, for example?

Other reasons people get married are right of survivorship (you mention not planning on dying, but most people don't plan on it - still happens), hospital visiting/medical decision privileges, not having to testify against one another in court, family no longer asking when, throwing a big party. :) For us, the positive impact on our taxes of buying a house and having a kid far outweighed the negative impact of getting married.
posted by peanut_mcgillicuty at 6:18 PM on March 7, 2014 [5 favorites]

My husband and I are each in that tax bracket (so filing jointly bumps us up). Our CPA ran our taxes both ways the first year we were married (2011), and we saved a few hundred bucks by filing jointly, without a mortgage or kids.
posted by Kriesa at 7:01 PM on March 7, 2014 [1 favorite]

To answer the "why would anyone get married?" part, I'd maintain that very few people get to plan dying or even just ending up seriously hospitalized.
posted by advicepig at 7:16 PM on March 7, 2014 [2 favorites]

Make sure you're getting your numbers straight first: marriage penalty/benefit calculator. I'm also guessing you're misunderstanding the way bracketing works.

When you do get married, you will need to recalculate and re-file a W4 at your job to take into account the other spouses income so your withholdings are correct.

My husband and I did not have a marriage tax penalty, and make similar incomes.
posted by fontophilic at 7:46 PM on March 7, 2014 [2 favorites]

I was all set to answer this like a tax question, but to be honest, as a person who's done lots of tax prep, by the end of your question it all felt like it really boiled down to the fact that there are people fighting very hard in many parts of the world for the legal ability to get married, not because it's cheaper on their taxes, but because of just how awful it is to wind up not being your partner's spouse in an emergency. I agree that nobody plans on dying. Or being hospitalized and unconscious. And these things happen to relatively young, healthy people every day.

Marriage is a thing that impacts your taxes, but it is not a tax decision and it is not something you should decide to do or not based on the advice of your CPA. A CPA is exactly the person you should ask to help you through the financial implications, if you can possibly afford it, because they'll be able to go through it all step-by-step way better, usually there's specific software designed to do projections like this better than Turbotax can... but if you are that serious about not doing it because of the tax implications, please at least consult a competent attorney to make sure that you have done everything possible to protect yourselves in the case of accident or illness, and know that there's a very good chance that even this will be sub-par protection compared to that offered to married couples.
posted by Sequence at 9:01 PM on March 7, 2014 [5 favorites]

You're almost certainly doing the math wrong. I can't come up with any scenario where your tax liability would be $4000 higher if both earners are currently in the 25% bracket filing as single and then get married.

There is a slight "marriage tax" - as you've noticed, when two middle-class earners who are both entirely in the 25% bracket when filing as single get married, they may begin to have a fraction of their earnings taxed at a higher tax rate. However, this percentage ends up being smaller than you're making it out to be.

In the most extreme scenario, using the 2014 brackets, a married couple who are both making $89,350 would have $29,850 of that income taxed at the 28% rate rather than the 25% rate. In this extreme scenario, that's a difference of $895.50.

In virtually all scenarios, the difference will be even less. This is often further offset by savings in car or health insurance, and the convenience of shared finances with large financial matters such as homebuying.
posted by eschatfische at 10:26 PM on March 7, 2014 [2 favorites]

You're confusing marginal and average tax rates. Here's a nice chart that illustrates that when you get bumped up into a higher tax bracket, only the dollars over that certain amount get taxed at the higher rate. Otherwise people would ask their bosses to not give them raises, or to give them pay cuts, so their take-home pay would be higher.

More relevant to your question is this wonkblog chart that shows specifically that you could never lose $4,000 a year from getting married unless you guys each earn a half million dollars, in which four grand a year to the treasury isn't such a bad thing.
posted by Luminiferous Ether at 5:32 AM on March 8, 2014 [3 favorites]

As others pointed out, you are most likely miscalculating the severity of the marriage penalty.

But there are ways to reduce even a small penalty. Make the maximum contributions to both of your 401(k) plans for a total of $35,000 ($46,000 if over age 50). Make maximum contributions to deductable IRAs if you are below the caps. Make maximum contributions to Health Savings Accounts.

Using these deductions, you can reduce your taxable income by $50,000 or more, putting you in a lower tax bracket and effectively eliminating the marriage penalty except for very large incomes.
posted by JackFlash at 10:50 AM on March 8, 2014

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