Voters are finally having their say in deciding who'll be running in the 2020 presidential election, and many people were surprised to see former South Bend, Indiana, mayor Pete Buttigieg emerge the winner in the Iowa caucuses. Yet with an excellent second-place showing in the New Hampshire primary as well, Buttigieg has gotten off to a strong start.
As many candidates have done, Buttigieg has released several years' worth of tax returns on his website. One thing that stands out when you look at Buttigieg's 2017 and 2018 tax returns is how much money he saved in taxes. Yet while the obvious first thought is that the presidential candidate must have gotten some benefits from tax reform efforts that took effect in 2018, the actual answer is a lot simpler -- and it also applied to millions of taxpayers across the nation.
A look at Buttigieg's tax returns
For a presidential candidate, Buttigieg has a relatively ordinary set of tax returns. With the exception of a book advance in 2017, nearly all of the income reported on his two most recent sets of tax returns came from wage and salary income.
Moreover, the amounts of income were relatively consistent. In 2017, the presidential candidate reported total income of just over $135,000. The total reported on his 2018 return climbed to nearly $153,000.
Yet interestingly, the amount of tax due dropped precipitously. Buttigieg's tax bill in 2017 was $28,830. But by 2018, the amount fell to $20,136. That's savings of almost $8,700 -- or more than 30%. And it largely came from just one tax break: the marriage bonus.
Marriage bonuses, marriage penalties
When considering the impact of marriage on taxes, many people immediately focus on what's known as the marriage penalty. This phenomenon reflects the higher taxes that have historically resulted when two people who each earn roughly the same amount of money tie the knot.
The reason for this has to do with how tax brackets for joint filers used to look. In 2017, the income amounts for the 10% and 15% brackets for joint filers were exactly double the income brackets for single filers. However, for higher tax rates, the joint filer income brackets were less than double. That leads to significant tax hikes for two-earner couples who get married.
However, Buttigieg was in a different situation. Getting married in 2018 didn't create a huge bump higher for the income amount on Buttigieg's 2018 return compared to 2017's, but it did provide the double-sized tax brackets available for married filers. Combine that with the nearly $2,900 in self-employment tax that Buttigieg paid on his book advance in 2017 but that didn't recur in 2018, and you can see where the total tax savings came from.
An even bigger marriage bonus under tax reform
The amount of income that Buttigieg reported in 2018 was at a level at which he would've gotten a sizable marriage bonus even if tax reform hadn't happened. However, the tax law amendments dramatically widened the benefits of the marriage bonus, extending its full positive impact to taxpayers in all but the two top brackets. Couples with total incomes up to $400,000 can reap the rewards.
Some factors other than tax reform also helped lessen Buttigieg's tax load. The former mayor itemized deductions in 2017, getting a total of almost $15,600 in write-offs from itemizing and a personal exemption. That number rose to $24,000 in 2018, as Buttigieg used the higher standard deduction for joint filers.
Tying the tax knot
Getting married is a huge step, and it has big financial implications. Couples need to be aware of the impact that marriage can have on taxes and prepare themselves accordingly. Whether the news is good or bad, most couples won't let tax considerations make their marriage decision for them -- but knowing about the implications can make it easier to do effective tax planning once the wedding is over.