Four Facts About the Tax Code’s Marriage Penalties — and Marriage Bonuses

A subject that frequently comes up during tax season is the “marriage penalty” that some couples face under the federal income tax — that is, they pay more tax by filing jointly as a married couple than if they had filed separately as individuals.  Four often-forgotten facts help put marriage penalties in context:

(1) More couples receive marriage bonuses — meaning they pay less tax by filing jointly — than marriage penalties, which have shrunk substantially in recent years.  Tax changes enacted since 2001 have reduced marriage penalties and increased marriage bonuses, as the Urban-Brookings Tax Policy Center points out.

(2) Depending on the design, reducing marriage penalties can be costly – partly because it can end up increasing marriage bonuses – and can primarily benefit upper-income filers.  Marriage penalty relief enacted in 2001 (and since made permanent) is an example.  For married couples, it boosted the standard deduction and raised the income level at which the 15 percent bracket ends and the 25 percent bracket begins, increasing the amount of their income taxed at 15 percent rather than at higher rates.

These changes now cost more than $6 billion a year.  They also disproportionately benefit upper-income households, because widening the 15 percent bracket only affects married couples whose incomes would otherwise have placed them above that bracket.  For example, a married couple with one child in 2015 won't benefit fully from the provision unless their income is at least $99,500.

(3) Many low- and moderate-income married couples will face higher marriage penalties in 2018 unless policymakers act.  Currently, to reduce marriage penalties, the income level at which the Earned Income Tax Credit (EITC) begins to phase out is set $5,000 higher for married couples than for single filers.  After 2017, it would be $3,000 higher than for single parents, which would shrink the EITC for many low-income married filers and increase the marriage penalty for many two-earner families.  Policymakers should permanently extend this provision, an example of progressive marriage penalty relief, as well as two other important provisions of the EITC and Child Tax Credit that also are slated to expire at the end of 2017.

(4) There’s little evidence that marriage penalties substantially affect marriage rates.  Most studies find little or no effects of taxes on marriage rates.  One possible reason, according to researchers, is that many filers don’t know how marrying will affect their taxes.  In addition, factors other than taxes seem to be more important in driving decisions about marriage.