The Marriage Tax Penalty: It is a myth?

Couple doing taxes at homePhoto bySmartAsset

This article discusses solely taxable income and not gross or net incomes that may be seen on paystubs or tax documents and is based on the 2023 Income Tax Tables as provided by the Internal Revenue Service (IRS). It does not address tax rates for Capital Gains. This article also is not intended to provide tax advice but to merely exhibit what is shown in the IRS Tax Tables for Tax Year 2023. Any tax questions or concerns should be referred to a competent tax attorney or accountant.

After falling in love, many people look forward to getting married to their beloved. They dream proverbially of getting a home with a white picket fence, having children, and having pets. Life would be wonderful

One concern that many couples have to consider before trading vows is the marriage tax penalty that has periodically been the subject of congressional discussion.

Found primarily in the 22 states that incorporate a marriage penalty into their tax brackets or policies, the marriage tax penalty does not apply at the federal level. Instead, at the federal level, there are tax benefits to being married, at least for those filing under the status of "Married, Filing Jointly."

The federal income tax tables are broken down into tiers of $50 of taxable income from $0 to $100,000 of taxable income. The rates increase by varying amounts from tier to tier but equally across the filing statuses up to a taxable income of $3,000. At that point, the rate increase as income rate increases settle to $5 from one tier to the next.

Money surrounding Form 1040Photo byInvestopedia

These increases continue to apply equally across the filing statuses up to a taxable income of $11,050, where the myth of a federal marriage tax penalty begins to dissolve.

At that point, the rates for Single and Married Filing Separately increase by a dollar more than the other two filing statuses. While $1 of a tax increase on a $50 income rise may not seem like a lot, that equates to $20 for every $1000.

$16,000 of taxable income brings the first jump in rates for Head of Household initially increased by $11, then settles at an increase of $6 from tier to tier. The rates for Married Filing Jointly remained the same, only increasing by $5 from tier to tier, Single/Married Filing Separately also remained steady at $6.

It is not until taxable income reaches $22,050 that the rate for Married Filing Jointly increases to $6 tier-to-tier. By then, the tax for those filing as Single or Married Filing Separately had increased from $1,109 on $11,050 of income (10.036%) to $2,429 on $22,050 (11.016%); and Head of Household had increased from $1,108 on $11,050 (10.027%) to $2,335 on $22,050 (10.590%).

Meanwhile, the rate for Married Filing Jointly only increased from $1,108 on $11,050 (9.982%) to $2,209 on $22,050 (10.018%).

This pattern continues throughout the tax tables, with Single/Married Filing Separately and Head of Household having rate increases applied more often than those applied to Married Filing Jointly.

The next jump of tier-to-tier rate increases occurs at the level of $44,750 of taxable income. The rate for Single/Married Filing Separately increases from a difference of $6 to almost double that, $11. The rate on a taxable income of $44,699 is $5,141, on $44,749 is $5,147, a difference of $6; but, on a taxable income of $44,750 the rate is $5,158, a difference of $11. The rates for Married Filing Jointly and for Head of Household remain with a difference of $6 when jumping from tier to tier.

Head of Household experiences the next jump at the level of $59,850 of taxable income. Jumping first by $9 before settling to an increase of $11 from tier to tier, the rate on $59,800 is $6,865 (from $6,859 on $59,799 of taxable income) jumped to $6,874 on $59,899 and then to $6,885 on $59,900. This brought the tier-to-tier increase for Head of Household equal with that of Single/Married Filing Separately at $11, while Married Filing Jointly remained steady at a $6 tier-to-tier increase.

It is not until taxable income reaches $89,450 that the tier-to-tier jump for Married Filing Jointly catches up to the other statuses. A $9 increase precedes this when moving from the tier for a taxable income of $89,449 ($10,291 tax) to $10,300 tax on $89,450. The next tier, beginning with taxable income of $89,500 sees the tax increase to $10,311.

Even when the Single/Married Filing Separately and Head of Household statuses faced another increase at $95,400 of taxable income, when each of these had a $12 tier-to-tier increase applied. Married Filing Jointly remained the same with only an increase of $11 from tier to tier through the remainder of the tables, $100,000 of taxable income.

Chart of 2023 Federal Income Tax RatesPhoto bySouthside Matt

At the end of the tables, Married Filing Jointly remains paying the lowest percentage of taxable income (12.61%), with Head of Household (15.788%) and Single/Married Filing Separately (17.394%) both paying more.

While some states do have penalties built into their Tax Codes for getting married, the federal tax system does not.