Definition of the Marriage Penalty Tax
The marriage penalty occurs when the federal tax on the combined income of a married couple is more than if the couple had filed as two single taxpayers. The marriage penalty is a part of the federal Tax Code and was created to equalize the tax schedule for married and single filers. Prior to the enactment of legislation in 2001, the marriage penalty affected more married couples earning dual incomes than it does today.
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Definition
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The marriage penalty refers to the difference between the federal income taxes assessed on a married couple in comparison to the federal income taxes assessed on two single filers filing separate tax returns. The effect of the marriage penalty results in the payment of more taxes by a married couple with two incomes than the federal income taxes paid by two unmarried filers earning the same income as the married couple.
History
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The purpose of the marriage penalty was to equalize the payment of income taxes. In the 1920s, married couples in community property states enjoyed the benefit of income splitting. Married couples could file separate returns, each claiming half of the income earned by the couple, regardless of which spouse actually earned the income. In common law states, on the other hand, the income only belonged to the spouse that earned it.
Married couples in common law states paid more in taxes than married couples did in community property states. According to the National Center for Policy Analysis’ publication “The Marriage Penalty,” a married couple in a common law state would have paid $9,082 in taxes on income of $25,000, and a married couple in a community property state would only have paid $6,460 on the same income.
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Creation
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Because of this disparity, Congress enacted legislation in 1948 that allowed all married couples to benefit from income splitting. However, single taxpayers paid more taxes than married filers that earned the same income. In 1969, Congress created a tax schedule to equalize the disparity paid in income taxes between married couples and single filers earning the same amount.
Result
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The new legislation, however, led to the marriage penalty. The marriage penalty only applied when both spouses earned income. As women increasingly began to work, this exacerbated the disparity married and single filers paid in income taxes. In 1999, for instance, the first $25,750 of a single taxpayer’s income was taxed at 15 percent, while the first $43,050 of a married couple’s income was taxed at 15 percent. The implementation of the marriage penalty resulted in the payment of more income taxes by married couples earning the same income as single tax filers.
Legislation
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In 2001, Congress enacted legislation to reduce the marriage penalty. Although the marriage penalty has not been completely eliminated, the legislation had the effect of equalizing the standard deduction and the 15 percent tax bracket for married and single filers. The marriage penalty may still apply when the income of the married couple falls above the 15 percent tax bracket.
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References
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