The Marriage Penalty vs Bonus
The US tax code treats married couples differently. Depending on how your incomes compare, filing jointly can either save you money (Marriage Bonus) or cost you extra (Marriage Penalty).
When do you get a Bonus?
A "Bonus" usually occurs when one spouse earns significantly more than the other. The progressive tax brackets allow the high earner's income to be "pulled down" into the lower tax brackets of the non-earning spouse.
- Example: Spouse A earns $200k, Spouse B earns $0.
- If Single: Spouse A hits high brackets (32%).
- If Married: The $200k uses the generous Married Standard Deduction ($29k) and wide Married brackets, effectively "averaging out" the rate.
When do you get a Penalty?
A "Penalty" often occurs when both spouses earn high, similar incomes.
- The 10%, 12%, and 22% brackets for married couples are exactly double the single brackets (Neutral).
- However, at higher incomes (35% and 37%), the brackets are NOT double. For example, the 37% bracket starts at ~$609k for singles but only ~$731k for couples (not $1.2M).
- Two high earners combine to push deeper into the 37% bracket faster than they would individually.
The SALT Cap Penalty
Another hidden penalty is the limitation on State and Local Tax (SALT) deduction. It is capped at $10,000 for single filers AND $10,000 for married couples. Two singles get $20k total deduction; one couple gets only $10k.
Head of Household
If you are unmarried but have a dependent (child), you should file as Head of Household (HoH), not Single. HoH has wider tax brackets and a higher Standard Deduction ($21,900 vs $14,600), significantly lowering your taxes.
Tax Brackets: The Marriage Gap
The penalty is most visible in the 37% bracket:
- Single: Starts at $609,350
- Married: Starts at $731,200
- Double Single: Would be $1,218,700
Notice the huge gap. A married couple earning $1M hits the top 37% rate, whereas two singles earning $500k each would only be in the 35% bracket. That 2% difference on $270k is a $5,400 penalty.
FAQs
- Can we file separately to avoid the penalty?
- You can choose "Married Filing Separately", but you lose many credits (Child Tax Credit, Student Loan Interest deduction). It is rarely beneficial unless for specific student loan repayment plans.
- Does marriage affect student loans?
- Yes. Income-Driven Repayment (IDR) plans often look at household income. Filing jointly might double your required monthly loan payment.