Getting married is the greatest day for 50 percent of
couples. The other 50 percent get divorced. Perhaps the marriage
penalty has something to do with it.
Marriage Penalty
For
all the chatter from politicians about family values, it is ironic that
the tax code actually penalizes people for getting married. At its
heart, the tax code is designed to modify behavior. Deductions and
credits are given in areas the politicians wish to promote and taken
away in areas considered less positive. Home ownership is viewed as a
good thing, so mortgage interest is deductible. Cigarettes are bad, so
they are taxed like no tomorrow. If you buy this argument, one must
wonder why married couples suffer under the tax code.
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A recent study found that by getting married,
couples are forced to pay roughly $1,500 in additional taxes. Known as
the marriage penalty, one must wonder what the government is up to. Is
it trying to promote family values or not? The numbers would seem to
indicate not.
The marriage penalty is a nasty
little development for newlyweds. The penalty occurs because married
couples must pool their earnings when they report taxes. Typically, this
means their pooled earnings move them into a higher tax bracket and
they pay more taxes. For instance, assume husband makes $45,000 a year
as does wife. As a married couple, their pooled income is $90,000 with
the accompanying tax consequences. For really doomed couples, the
combined income will actually kick in the alternative minimum tax. The
AMT more or less voids many major deductions. In the tax industry, there
is a nickname for this situation – the divorce tax.
The
marriage penalty has existed for years, yet the politicians have failed
to find a fix. They pay lip service to the idea, but no major changes
have been made to fix the problem. The best they have come up with is
doubling the standard deduction for married couples, but this has had
little impact since most couples itemize their deductions.
It appears the marriage tax penalty is here to stay
for the foreseeable future. One has to wonder why our family values
President didn’t include a fix in his tax cuts.