Traditionally, our society has tried to reward the institution of marriage with social and financial benefits designed to reward people for staying together.  And while many families benefit from things like insurance and mortgage guidelines, when it comes to paying taxes they often find this is not the case.

The marriage “penalty” refers to the situation where some married couples actually pay higher taxes than their single counterparts. When spouses are making similar incomes and file one joint tax return, they will likely pay more taxes than if they were unmarried and filed as singles. The number of couples who are subject to the penalty varies as tax rates have varied over the years.

How it works

The root of this problem is the progressive tax structure. Earners with higher incomes pay a higher rate in taxes. So when incomes are joined, they fall into a higher tax bracket. The tax system cannot contain all three features: joint filing for married couples, a progressive tax structure, and separating a couple’s tax bill from their marital status.  Income averaging can be advantageous to a couple.

As an example, if one member of a couple makes $80,000 and the other $20,000, they will pay less tax if they can file as if both made $50,000 and filed on their own income. In this case, the joint filing rate is designed to give that couple a tax break over filing separately. They have an advantage in being married.

Before 1969, that couple filing jointly was advantageous to a married couple with different incomes. However, starting in 1969, the USA adopted a higher set of tax brackets for the averaged income of a married couple. Under the new rates, the couple may still benefit with a stat-at-home spouse. But a couple with about equal incomes will pay more than if they filed separately as single people.

Where does this leave you?

Congress has eliminated much of the tax penalty through legislation that was due to expire in 2011, but that tax relief benefit has been temporarily extended.  In fact, in today’s economy you even see semi-serious blog posts about whether or not it makes sense to actually get legally divorced just to avoid this marriage penalty.  And while no one is seriously advocating this, it does bring light to the fact that this additional tax problem is a serious problem for many married couples.