What is a Marriage Penalty?A marriage penalty is when a household’s overall tax bill increases due to a couple marrying and filing taxes jointly. A marriage penalty typically occurs when two individuals with similar incomes marry; this is true for both high- and low-income couples.
In other words, a marriage penalty arises any time a married couple pays higher income taxes than they would have paid if they were un-married and filed individual tax returns.At the federal level, the Tax Cuts and Jobs Act of 2017 definitely lowered the cost of being married for many couples. But being married can be more expensive than being two single tax filers on April 15th. For example, if a couple has children and both spouses earn income, they can owe thousands of dollars every year just for being married. Some states have their own income tax. Under a graduated-rate income tax system, a taxpayer’s marginal income is exposed to progressively higher tax rates. A marriage penalty might exist when a state’s income brackets for married taxpayers filing jointly are less than double the bracket widths that apply to single filers. Put differently, married couples who file jointly under this scenario face a higher effective tax rate than they would if they filed as two single individuals with the same amount of combined income.
Florida Divorce and TaxI’ve written about divorce and taxes before. For example, in 2012 the American Taxpayer Relief Act made permanent the Bush-era expanded standard deduction, and the expanded 15% bracket for joint filers.
But for high income earners, the 2012 law raised taxes on couples making more than $450,000, and individuals making more than $400,000.As it turns out, some couples found out they could save over $25,000 a year if they divorced.
State Marriage PenaltiesWhile Florida doesn’t have a state income tax, fifteen states have a marriage penalty built into their bracket structure. Seven additional states (Arkansas, Delaware, Iowa, Mississippi, Missouri, Montana, and West Virginia), as well as the District of Columbia, fail to double bracket widths, but offset the marriage penalty in their bracket structure by allowing married taxpayers to file separately on the same return to avoid losing credits and exemptions.
Ten states have a graduated-rate income tax but double their brackets to avoid a marriage penalty: Alabama, Arizona, Connecticut, Hawaii, Idaho, Kansas, Louisiana, Maine, Nebraska, and Oregon.The ability to file separately on the same return is important in states that do not double bracket widths, as is the ability to do so even if the couple files jointly for federal purposes. While married couples have the option of filing separately—though some states only allow this if they do so on their federal forms as well—this normally creates a disadvantage, because it either disallows or reduces the value of deductions and credits available to the family jointly, which is also a form of marriage penalty. Filing separately on the same return eliminates this problem, though at the cost of slightly greater complexity than doubling tax brackets for joint filers so that there is no penalty for filing jointly. The Tax Foundation article is here.