By Roy Lewis
April 30, 1998

Many of you have asked about the so-called "Marriage Penalty." With apologies to my lovely wife, some of you might be able to think of a number of "penalties" that might accrue in the blissful state of matrimony. But we'll leave that discussion for another time and place, and focus on how being married might impact your income taxes.

Many people believe that the "married-joint" filing status allows them to pay less in taxes than a "single" filing status. Many times, this is far from the truth. Most folks believe that the "married-joint" tax rates and exemptions are simply double that of the "single" rates and exemptions. This is also not true. The penalty applies whenever both spouses work and they have to pay at a higher "joint" tax rate on the same total income than they would pay if each were single. This usually happens where both spouses have relatively equal incomes.

For example, say that two taxpayers each had adjusted gross income of $31,000 in 1997, and assume double that ($62,000) on a joint return. Assuming the standard deduction and no other deductions and/or credits, their married-joint tax would amount to $8,595, but their single tax (on $31,000) would amount to $3,634 each (for a total of $7,268). Some simple subtraction will tell you that their marriage penalty amounts to $1,327. An additional $1,327 simply for the privilege of being married. No other reason.

Ouch!!!

The joint return pays $1,327 more in tax for a number of reasons. The standard deduction for the joint return is $6,900� less than half of the standard deduction for a single return ($4,150) times two. But the main reason for this "penalty" is that the joint return will pay tax at a 28% rate on a much larger portion of their income, while the singles both pay at a top rate of only 15%.

Why?

All you have to do is look at the tax tables. If you look at the single table, you see that the 15% rate bracket tops out at a taxable income of $24,650. Common sense might tell you that the joint 15% bracket would then top out at $49,300. But as I have pointed out many times in the past, taxes and common sense often don't go hand in hand. The actual top end of the 15% rate for a joint return is only $41,200. This is substantially less than twice the single top end amount, which is why the joint return will pay tax at the 28% rate while the two single returns will never get above the 15% rate.

And it gets worse. At the high end of the scale, if each spouse had taxable income of, say, $278,450 (total of $556,900), the couple would pay $16,737.20 more tax than if each were single.

There are even more marriage penalties. These additional penalties don't apply to everyone, or in every year, but they still mean more tax when they do hit. Here's a list of some of the more common ones:

Quicker loss of itemized deductions: A married couple starts to lose their itemized deductions when their total combined adjusted gross income for 1998 exceeds $124,500. If single, each could earn $124,500 (total of $249,000) before losing any itemized deductions.

Quicker loss of personal exemptions: A married couple starts to lose their personal exemptions at combined adjusted gross income of $186,800. If single, each could have adjusted gross income of $124,500 (total of $249,000).

Lower capital loss deduction: A married couple can deduct capital losses up to $3,000 total. The same two persons, if single, could deduct a total of $6,000 ($3,000 each).

Reduced passive activity loss deduction for active rental real estate owner: A married couple who actively participate in renting out real property can deduct up to $25,000 of loss from the activity if their modified adjusted gross income is $100,000 or less. If single, each would get an up to $25,000 deduction (up to $50,000 total) and each could earn $100,000 ($200,000 total).

On the other hand, tax can be somewhat lower for some married people filing jointly than if they were single where there is a wide discrepancy in their earnings. There's no universal rule.

Many point to the marriage penalty as a need for a fairer and more logical tax code. A number of folks in the House and Senate have attempted to address this issue and correct it� obviously without success. So this is not an issue lost on your Federal representatives. If you believe, as I do, that the marriage penalty is nothing more than a way for Uncle Sammy to reach deeper into your pockets, you might want to express your feelings directly to your Congressperson or Senator.

Finally, a few folks will attempt to overcome the marriage penalty by filing "married-separate." In many cases, this is not the answer. There are many complications to this filing status that are not immediately apparent on first blush. Next week we'll take a closer look at the "married-separate" filing status and some of the benefits and pitfalls that are attached to that status.

Please note that Roy cannot answer individual questions via e-mail. If you have tax questions, please ask them on the taxes message board. Thanks!