Year-End Planning: Tax Brackets and the Marriage Penalty

As if you didn’t already have enough things to consider when planning your wedding, postponing or accelerating your wedding date could help you come out ahead from a federal tax standpoint.

While the lower brackets (10% and 15%) are exactly twice as large for married taxpayers filing jointly as the amounts for single taxpayers, the brackets above 15% actually have a marriage penalty built in.

Take a look at the table below:CPA, Paul Glantz, Austin, TX, Taxes, BusinessFor example, in 2016, unmarried taxpayers can each have $91,150 of taxable income and remain in the 25% bracket. If these same taxpayers were married, they would be in the 28% bracket with $182,300 ($91,150 x 2) of income. The 25% married filing joint bracket is not double the single 25% bracket (single 25% bracket: end at $91,150; married joint 25% bracket: ends at $151,900).

As the marginal rates increase, there is even more of a penalty. Looking at the top brackets, a single taxpayer can make $415,050 before entering the 39.6% bracket, while a married couple would enter this bracket at $466,951. If two single taxpayers were earning $415,050, that would equate to $830,100, and both would still remain in the 35% bracket. If these same two taxpayers were married, $830,100 of income would push them well into the 39.6% bracket.

To illustrate, here is another example. Michael and Mary are planning to get married. Mary expects to have $300,000 of taxable income in 2016, and Michael expects to have $250,000. Their combined taxable income for 2016 will be $550,000. If they get married before 2017, and file a joint return for 2016, they will owe income taxes for 2016 of $163,466.30. If they delay their marriage until 2017, then for 2016, Mary will owe taxes of $82,529.25, and Michael will owe $66,029.25 for a combined tax of $148,558.50 . This will be $14,887.80 less than they would owe if they married in 2016 and filed a joint return for 2016.

It’s not all bad news, though. If only one of the prospective spouses has substantial income, marriage and the filing of a joint return will usually save taxes, thus resulting in a marriage bonus.