The New Tax Law Contains a Marriage Penalty

Learn about the two marriage penalties contained in the new tax law.

For tax purposes, the marriage penalty means that two people with the same income would pay more tax if they get married and file a joint return than if they stay single and file separately as single taxpayers. The tax new tax law that went into effect in 2018 (the Tax Cuts and Jobs Act; “TCJA”) contains a marriage penalty. Actually, it contains two: one built-in to the new tax rates established by the law and one resulting from new restrictions on deducting state and local taxes.

The Tax Rate Marriage Penalty

To avoid a marriage penalty, the tax bracket income thresholds for married couples must be exactly double those for single taxpayers. The TCJA created seven new tax brackets, as shown in the following chart:

2018 Personal Income Tax Rates

Rate

Married Filing Jointly

Single

10%

$0 - $19,050

$0 - $9,525

12%

$19,050- $77,400

$9,525 - $38,700

22%

$77,400 - $165,000

$38,700 - $82,500

24%

$165,000 - $315,000

$82,500 - $157,500

32%

$315,000 - $400,000

$157,500 - $200,000

35%

$400,000 - $600,000

$200,000 - $500,000

37%

over $600,000

over $500,000

You can see that the income thresholds for marrieds are double those for singles, except for the last top 37% bracket. Here the income threshold for marrieds is $600,000 while the threshold for singles is $500,000 (instead of $300,000, the one-half amount). As a result, singles get an extra $200,000 each at the lower 35% rate while married couples filing jointly must pay tax at a 2% higher rate (37%) for the first combined $400,000 they make over $600,000 in taxable income. This is a maximum $8,000 marriage penalty, increasing income taxes for married couples by up to 2.59%.

The reason the marriage penalty was imposed at the top tax rate was to help raise more revenue and enable Congress to fund other tax reductions in the TCJA.

State and Local Tax Marriage Penalty

The second marriage penalty in the TCJA relates to the personal itemized deduction for state and local taxes—that is, property taxes and either state income or sales taxes. The TCJA limits this deduction to a total of $10,000 per taxpayer per year. However, the $10,000 limit applies to both singles and married couples filing jointly. Thus, a married couple can deduct only $10,000 in such taxes, but an unmarried couple filing separate returns could each deduct $10,000 for a total deduction of $20,000. This results in a maximum marriage penalty of $3,700 for taxpayers in the top 37% bracket. The amount of the penalty is lower for married taxpayers in lower brackets.

The Bottom Line

A single taxpayer who earns $500,000 in wages would pay about $143,690 in federal income tax (assuming he or she lives in one of the 43 states with income tax and has $10,000 in charitable contributions). Two similarly situated single taxpayers would pay twice this amount for a total of $287,380. However, if these two highly compensated taxpayers met, fell in love, and got married, their joint tax liability would jump to $298,280, an increase of $10,900. Of course, most people don’t earn this much money so you don’t need to worry much about the TCJA’s tax penalties unless you are one of these high earners.

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