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The IRS "Marriage Penalty" Is Alive and Well -- but Only for These Earners

By Jamie Cattanach - Nov 15, 2018 at 10:05PM

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Thanks to the Tax Cuts and Jobs Act, the income tax marriage penalty is a thing of the past. That is, unless you fit into one of these financial scenarios.

Controversial though it may be, the Tax Cuts and Jobs Act, or TCJA, did fulfill its aim to simplify parts of the tax code -- including the infamous "marriage penalty," which left couples with similar incomes paying more in personal tax than they would have if they hadn't said "I do."

However, the new rules haven't done away with the connubial cost entirely. In fact, the marriage penalty is alive and well in the newly edited tax code -- but only if you're among the top income earners.

A young couple sits on the end of a pier watching the sunset.

Image source: Getty Images.

How has the marriage penalty changed -- and will it affect you?

Under the old tax code, married couples with similar personal incomes would end up paying more in total tax cost than they would if they'd filed separately. For instance, if both people earned $150,000 a year, they'd each owe $41,616.25 if filing separately, or a total of $83,232.50. But when filing jointly, the tax total would climb to $87,039.00 -- a difference of $3,806.50.

Under the TCJA, personal income tax has been significantly simplified. A glance at the IRS's 2018 tax brackets shows that the taxable income amounts for joint filers line up neatly with the singles': Each range is simply doubled. Thus, if you and your spouse both make $150,000 this year, you'll have the same marginal income tax rate of 24% you'd have if you were single.

Here's a look at the brackets.

Rate Income Range, Single Filers Income Range, Joint Filers
10% $0-$9,525 $0-$19,050
12% $9,526-$38,700 $19,051-$77,400
22% $38,701-$82,500 $77,401-$165,000
24% $82,501-$157,500 $165,001-$315,000
32% $157,501-$200,000 $315,001-$400,000
35% $200,000-$500,000 $400,001-$600,000
37% Over $500,000 Over $600,000

Data source: IRS.

Those last two brackets get a little hinky, though. You'll see that the income threshold for joint filers stops following the simple rate-doubling pattern established at the top of the table, meaning single filers have slightly more wiggle room to earn more income and still pay taxes at the lower 35% rate.

So if you earned $500,000 this year and filed on your own, you'd owe the federal government $150,689.50 -- that's $45,689.50 plus 35% of the amount over $200,000. If you and your non-betrothed partner each earned that much, you'd pay a collective $301,379 to Uncle Sam.

But if you and your spouse both earned $500,000 and filed jointly, your total taxable income would be $1 million -- well over the $600,000 threshold for the 37% rate. You'd owe $309,379, which means the marriage penalty would cost you an extra $8,000.

One more hiccup: itemized deductions

Most of us aren't earning at those extraordinary levels, so we don't have to worry about the marriage penalty on income taxes. But the new code does contain one more hitch for those who are hitched, even if they're average earners.

The TCJA limits personal itemized deductions for state and local taxes to a total of $10,000 per taxpayer per year -- regardless of whether you're filing singly or jointly. So if you're married, you're giving up an extra $10,000 in possible deductions that you could have made if you'd kept things separated.

If the new marriage penalty does affect you, at least you can know that your money is helping the government raise revenue and fund other TCJA tax deductions. Of course, that may or may not bring you any comfort when it's time to pay up.

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