The Marriage Penalty

The Marriage Penalty

“We both claim single and zero, why do we still owe?”

There is a common misconception that married couples are always subject to favorable tax treatment over those who file Single. While this is the case in most situations, it’s quite common that married couples can face a greater tax liability.

Please note, the “marriage penalty” is not a real penalty for tax purposes. It is simply a common expression for the unfavorable tax outcome of married couples versus two single taxpayers. The reason for this is how the tax tables are set up. They fail to perfectly account for 2 individuals who are higher earners, partially because the tax tables don’t line up perfectly.

For example, a couple who each makes $100,000 will have a tax liability of $18,289.50, or $36,579 in total. A married couple, filing jointly, making $200,000 is subject to a $40,429 tax liability. A difference of $3,850 in additional taxes.

The main reason for this “penalty” lies in the withholding tables. The withholding tables are set up in a way that doesn’t consider the income of a spouse. Deductions and exemptions are factored in while only considering one income. The best way for a couple to plan for this is to adjust your withholding. If a married couple wants to ensure that they will not owe money at the end of the year, the best thing to do is to withhold at a “Single” rate and claim zero allowances, and add a set additional amount over the normal withholding for each pay period.

See your HR department for a new W-4 form, and consider using the IRS Withholding Calculator.

by Jonathan DeHoek, EA