Marriage Penalties and Bonuses under the Tax Cuts and Jobs Act

What Are the Marriage Penalty and Marriage Bonus?

A marriage penalty or bonus is the change in a couple’s total tax bill as a result of getting married and thus filing their taxes jointly. The degree to which the marriage penalty or bonus affects any given couple depends on the level of their combined income, the extent to which their individual incomes are similar, and the number of children they have.

Marriage Bonus

The marriage bonus typically occurs when two individuals with disparate incomes marry. When an individual with a higher income marries and files jointly with an individual with a much smaller income, the additional income is usually not enough to push the couple’s combined income into a higher tax bracket. However, due to the much wider income tax brackets for married individuals, much of the couple’s income falls into lower tax brackets. The result is a lower tax bill.

Suppose an unmarried couple earned a total of $60,000, but the distribution was unequal: $20,000 from the first partner and $40,000 from the second (Table 1). As an unmarried couple, their combined tax bill is $8,560. When the couple gets married and combines their incomes, their taxable income remains the same. However, the tax brackets for married couples widen. This means that less of the couple’s income is taxed at the 12 percent marginal tax rate than it was when they were not married. As a result, their combined tax bill would fall by $31 to $8,529.

Marriage Penalty

Marriage penalties typically occur when two individuals with similar incomes marry. Prior to the Tax Cuts and Jobs Act (TCJA), the marriage penalty was especially pronounced for medium- to high-income earners because the income tax brackets for married couples at the top of the income tax schedule were not twice as wide as the equivalent brackets for single individuals. Currently, however, all tax brackets for married filers are exactly double those for single filers, except for the top 37 percent marginal rate. As such, marriage penalties are generally only felt at very high income levels.

An unmarried couple with equal incomes that earn a combined $1,000,000 would have a total tax bill of $328,837.80 ($292,979.00 from the individual income tax, $30,458.80 from the payroll tax, and an additional $5,400.00 from the Medicare surtax). If they were to get married, they would be hit by a relatively small marriage penalty of $890.60 (Table 2). This penalty comes from two different taxes.

First, the narrower top tax brackets for married individuals push more of their taxable income into the 37 percent marginal tax bracket. In addition, their combined income as a married couple would push their income to be more greatly affected by the Medicare Surtax of 0.9 percent on income over $250,000. When unmarried, both only had to pay the Medicare surtax on less than half their income because the surtax only applies to income over $200,000 for singles.

For low-income individuals, the Earned Income Tax Credit (EITC) has a significant impact on marriage penalties and bonuses. Adding one partner’s income to the other partner’s income can easily push the combined income of the couple into the phaseout range, or further into the phase-in of the EITC, resulting in a reduction or increase of the couple’s combined after-tax income.

Table 3 shows an example of a couple with equal incomes of $15,000 ($30,000 combined) with one child. Unmarried, their total tax bill would be -$2,296.71 due to the partial refundability of the $2,000 Child Tax Credit (CTC) and the $3,468 EITC received by the individual who claimed the child. If they were to marry, their combined tax bill would still be negative, but they would face a marriage penalty of $618.60.

There are two reasons why this couple is hit with a penalty. First, when the couple is unmarried, one individual can claim head of household, which provides a larger standard deduction and wider tax brackets. When married, the couple loses the benefit of head of household status, which results in higher combined taxable income.

Second, as an unmarried couple, one of the parents could claim their child for the EITC and receive the full amount of $3,468.00 with the income of $15,000 (Figure 1). However, when married, their total income of $30,000 pushes them into the phaseout range of the EITC, reducing the credit amount by about $1,000.