Getting married comes with its share of benefits -- namely, someone else with whom to split both the bills and the chores. But when it comes to taxes, getting married isn't always a plus. That's because the IRS will tax married couples at a higher rate if their incomes fall within a certain threshold. Now in some cases, filing jointly will improve your tax situation, but if you and your spouse are relatively high earners, that could end up working against you.
It's all about your tax bracket
To see how filing a joint tax return with a spouse will impact what you owe the IRS, you need to understand how the tax system works. The U.S. operates under what's known as a progressive tax system, which means that the more money you earn, the more taxes you'll pay on your income. Keep in mind, however, that only your highest dollars of earnings will be taxed at the highest marginal rate you fall into.
IMAGE SOURCE: GETTY IMAGES.
The following table shows what marginal tax bracket applies to you based on your income and filing status:
|
Tax Bracket |
Income Range: Single Filer |
Income Range: Married Filing Jointly |
|---|---|---|
|
10% |
$0-$9,325 |
$0-$18,650 |
|
15% |
$9,326-$37,950 |
$18,651-$75,900 |
|
25% |
$37,951-$91,900 |
$75,901-$153,100 |
|
28% |
$91,901-$191,650 |
$153,101-$233,350 |
|
33% |
$190,651-$416,700 |
$233,351-$416,700 |
|
35% |
$416,701-$418,400 |
$416,701-$470,700 |
|
39.6% |
$418,401 and above |
$470,701 and above |
DATA SOURCE: TAXFOUNDATION.ORG.
Say you earn $20,000 a year as a single filer. Your tax bracket will be 15%, which means you'll pay that tax rate on your highest dollars of income (namely, anything above $9,325). Now let's say that you and your spouse each earn $20,000, or $40,000 combined. In that case, your tax bracket won't change. But depending on your earnings level, getting married could alter your tax bracket.
The marriage bonus
Some couples fare pretty well when they marry and start filing their taxes jointly. This tends to hold true when you're dealing with a married couple in which one person significantly out-earns the other.
Imagine that you make $25,000 a year, while your spouse makes $200,000. That's a pretty wide gap. Now as a single filer, you'd fall into the 15% tax bracket. Your spouse, meanwhile, would land in the 33% bracket. But when you combine the two incomes for a total of $225,000, as a couple, you get pushed down into the 28% bracket, which means you're charged less tax on your highest combined dollars of earnings.
The marriage penalty
The flip side of the marriage bonus, however, is the marriage penalty, and it's where a lot of couples get caught in a trap. The marriage penalty comes into play when a couple's combined income results in a higher tax bracket overall.
Here's how that might play out. Imagine that you earn $100,000 a year, while your spouse earns $150,000. As single tax filers, you'd each fall into the 28% bracket. But with a combined income of $250,000, you'd land in the 33% bracket as joint filers, thus paying more on your highest dollars of earnings.
Now one thing to keep in mind is that President Trump's tax plan, if implemented, could change the way the above-referenced brackets work. The plan calls for a scaled-down system that reduces the number of individual brackets to just three, and depending on where you fall, things could work out in your favor. If you and your spouse are both higher earners, however, you probably won't land in a lower bracket than what you're currently in unless you're talking about a really sizable combined income.
Avoiding the marriage penalty
The easiest way to avoid the marriage penalty is to not get married, and retain your ability to file taxes as a pair of singles. But that's really not the most practical approach from either a romantic or logistic standpoint. Besides, there are certain financial benefits to getting married, like the ability to obtain health coverage under a spouse's plan if you don't have access to one yourself.
A better bet, therefore, is to work on lowering your tax bracket on a whole by being strategic throughout the year. This means capitalizing on homeowner tax breaks, maximizing charitable contributions, and excluding a portion of your income from taxes by funding your IRAs or 401(k)s. In some cases, the marriage penalty may be truly unavoidable, but if you make a few smart moves, you might actually end up improving your situation and paying less tax than you and your spouse did individually, before you got married.
