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The Online Advisor - June 1999
Wedding bells ringing? Beware the marriage penalty.
Marriage brings many blessings, but a lower tax bill may not be one of them. Many couples find that the taxes they owe as a married couple are higher than the combined taxes they paid as singles. This is the so-called marriage penalty, and it now affects almost half of all married couples. You're most likely to be hit with the penalty if your income and your spouse's are about the same.
There are two main reasons why the marriage penalty arises. First, the standard deduction for a married couple is less than twice the standard deduction for singles, so a couple's combined taxable income is higher. Second, because of the way the tax brackets are structured, a married couple's combined income often pushes them into a higher tax bracket. The result is a higher tax bill.
Married couples are penalized in numerous other ways, too. For example, many tax credits and other tax breaks now phase out when incomes hit certain levels. But the income phase-out levels for married filers are usually less than twice the level for single filers, penalizing two-income families. This is the case with eligibility for a Roth IRA, the child tax credit, and the education IRA, among others. It also applies to the threshold for taxing social security benefits, affecting married senior citizens.
In some cases, the same income limit applies whether you're married or single. Examples include eligibility to convert to a Roth IRA, and limits on capital losses, mortgage interest deductions, and rental property losses. In these cases, two singles receive twice the tax break that a married couple receives.
If you're planning a wedding, you might want to determine whether the marriage penalty will affect you. If it does, factor that into your 1999 tax planning.