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It should be noted the above discussion focused entirely on the marriage penalty/bonus resulting from progressive tax rates that can exist for spouses with substantial income. As briefly mentioned, there also can be many other marriage penalties/bonuses because of the different income phase-outs, deductions, and credits that apply for married vs. single taxpayers. For example, because of the way the EITC is structured, low-income taxpayers can also suffer marriage penalties/bonuses. If interested see the NY Times article linked above that shows that childless, married couples with less than $40,000 of joint income or more than $175,000 are most likely to incur a marriage penalty whereas those with income between $40,000 and $175,000 are far more likely to receive a marriage bonus. Below is a graphic from the NY Times article: [space intentionally left blank]
August 17, 2017 draft 37 In November 2015 the US Treasury Department issued a Report on the Marriage Penalty/Bonus.43This report predicts that (i) 40% of non-elderly married couples will incur a marriage penalty (average penalty of $1,927), and (ii) 51% will incur a marriage bonus (average bonus of $2,698). Below is Table 1 from the US Treasury report that estimates marriage penalty/bonuses by income group: 43-Rates.pdf
August 17, 2017 draft 38 Finally, if you are interested in reading even a little more on the marriage penalty, see pages 4 to 6 of the JCT Report titled: Fairness and Tax Policy(February 2015) available at . There also are several other articles posted to Blackboard. Key Observations/Planning Points Surrounding the Taxable Unit: 1)Filing status is very important; impacting tax rates and various exemptions/deductions/credits 2)Some couples have been known to avoid marriage so as to reduce their tax liability (i.e., not incur a marriage penalty) 3)Alternatively, some couples have accelerated their marriage to obtain a marriage bonus when one spouse earns substantially more than the other spouse444)Individuals with qualifying dependents often forget to claim Head of Household status or Qualifying Widow(er) status 5)Although various academics have suggested the US should consider a separate individual approach like other countries, legislative efforts have focused primarily on expanding the tax brackets to minimize the opportunity for a spouse’s income to be taxed in a higher bracket.However, the end result is that the percentage of married couples receiving marriage bonuses has increased. 6)The US treasury Department estimates that approximately 40% of married, non-elderly taxpayers incur a marriage penalty. The marriage penalty for high income couples generally results from progressive tax rates and can start to apply when a married couple has approximately $175,000 of combined earnings relatively evenly split between the two spouses. Although many professional couples fit this fact pattern, the percentage of the overall population is relatively small.