October is arguably the busiest month for weddings, and it’s always fun to celebrate with friends and family. And obviously, there are endless benefits that come with tying the knot. Unfortunately, in terms of the tax code, married couples aren’t exactly better off than single taxpayers. Knowing what you’re up against can help you get prepared once tax season officially rolls around.
What’s the Marriage Penalty Really Mean?
The phrase “marriage penalty” sounds pretty harsh. But it’s referred to that for good reason. It’s important for couples to know just how their tax situation will change. When you get right down to it, you’re going to end up paying more federal taxes than you might as two single filers. This happens in a few different ways.
Phase-Outs for Certain Tax Benefits
The most obvious pitfall for married couples with the tax code is the earned income tax credit (EITC). A single person definitely gets the upper hand here. Married taxpayers lose the EITC when their income goes over $57,414. Compare that with the potential for a single mother with three child dependents. She could still claim the EITC with an income that stays below $51,464. Only having a difference of $6,000 for the household income makes a big difference. The threshold is great news for single taxpayers, but it’s definitely more difficult for married couples to have a lower tax responsibility year over year.
We even see these setbacks for couples who have reached retirement. The threshold for your Social Security benefits to get taxed as a married couple is $32,000. Contrast that with the $25,000 threshold for a single senior. Seems odd, right? Again, you might think this would be doubled when we’re considering two people vs an individual. It’s just another example of how the tax code is often harsher for married taxpayers.
Looking at the Bright Side
When you run the numbers, most married couples aren’t dealing with the same tax penalties that they were prior to certain 2017 law changes. Now the biggest hits are on combined incomes that far exceed $200,000. (Which might be one of the reasons why so many high-earners decided to avoid marriage. It’s just more cost-effective for their taxes!)
If you or someone you know wants to get a jump on tax planning before filing, we can help! NSO & Company is always happy to talk with prospective clients. We’re passionate about solving complex problems, and we’re well-versed in the tax code. Plus, we serve clients all throughout the greater Indianapolis area. We even have some clients who live out of state. To continue the conversation, please send us a message or call (317) 588-3131. We’d love to hear from you—or your spouse!